Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — Trident Programme

Dr. David Clark: asked the Secretary of State for Defence what is the latest estimate of the cost of the Trident programme.

The Secretary of State for Defence (Mr. Michael Heseltine): I have recently submitted a figure of £8,729 million to the Public Accounts Committee and the Select Committee on Defence. This is the estimate prepared by my Department for this year's recosting of the defence programme.

Dr. Clark: Has the Secretary of State seen the report of the National Audit Office that suggests that savings of about £500 million are included in the figure that he has announced? Is that saving at the cost of British jobs, because the missiles are being prepared and refurbished in the United States? Does that not make a mockery of the right hon. Gentleman's claim that it will be an independent nuclear deterrent, because the missiles are entirely dependent on the United States?

Mr. Heseltine: As the House knows, the missiles are being purchased from the United States, but they will be under the operational command of the Royal Navy through the appropriate controls.
I must tell the hon. Gentleman that the savings are those that we identified by taking the decision to go for servicing at King's bay. The savings are of the order of £500 million, but we now think they may be higher. Certainly they have been taken into account.

Mr. Wilkinson: As the period of maximum expenditure on the procurement of Trident will come after 1985–86, when the increase in defence expenditure in real terms will be markedly reduced, will my right hon. Friend examine the possibility of procuring Ohio-class boats from the United States and building them under licence in this country, as the 24-tube SSBN could constitute major savings in expenditure?

Mr. Heseltine: I am grateful to my hon. Friend for his suggestion, but we have taken the decision on procurement of the appropriate boat. It is our view that over the period of procurement the Trident system will absorb 3 per cent. of the total defence budget, and 6 per cent. of the equipment budget.

Dr. Owen: As the dollar-sterling exchange rate has been used in the calculations, does that not increase

demonstrate what many of us have been saying—that this will make a big inroad into the improvement of our conventional defence forces?

Mr. Heseltine: I an sure the right hon. Gentleman will realise that the increasing level of defence expenditure takes account of the point that he raised. I have followed precedents in coming to the estimates that I have provided, about which I have informed the House today. The sterling-dollar exchange rate on which the figures were calculated was taken in June 1983 at £1 to $1·53. It has been a precedent for Governments to take updating procedures that are relevant to the preparation of the Estimates—in this instance for 1984–85 and for the 1984 long-term costings. I have followed those precedents.

Mr. Terlezki: How many jobs will the Trident programme create in Britain?

Mr. Heseltine: I do not have the precise figure, but about 55 per cent. of the cost will be incurred in this country. We have the opportunity, which has been negotiated with the United States, for British contractors to tender for work that is available generally in the programme.

Mr. Denzil Davies: Is the Secretary of State aware that even today's figure of almost £9 billion is still hopelessly optimistic, because almost half the costs are wholly outside the right hon. Gentleman's control on the foreign exchange markets and in the hands of American arms manufacturers? Is the right hon. Gentleman aware that most independent analysts put the cost in excess of £10 billion? Why does he not recognise reality and cancel that extravagant and irrevelant status symbol and totem pole?

Mr. Heseltine: The simplest answer to the right hon. Gentleman is that I believe that Britain should have an independent nuclear deterrent. In that policy I am subscribing to the views of all Labour Governments since the war.

Oral Answers to Questions — Experimental Aircraft Project

Mr. Robert Atkins: asked the Secretary of State for Defence if he will make a statement on the current Government funding for the experimental aircraft project.

The Minister of State for Defence Procurement (Mr. Geoffrey Pattie): We are continuing to provide substantial financial support for the experimental aircraft programme in accordance with the terms of our contract with British Aerospace.

Mr. Atkins: Is my hon. Friend aware of the great importance of making up the loss of funding on the experimental aircraft project caused by the withdrawal of Messerschmitt Bolkow Bloehm from participation in the programme, especially as it is vital to give the future European fighter aircraft a flying start from a British base?

Mr. Pattie: Yes, I assure my hon. Friend that I am aware of the importance of that project. I have no doubt that British Aerospace will be in touch with my Department in the near future about that matter.

Mr. McNamara: When British Aerospace comes knocking on his door, will the Minister give a favourable reply and be rather more generous compared with the


niggardly support for the project that has been given hitherto and with the support that the French industry has received from its Government for the ACX?

Mr. Pattie: All requests from British Aerospace will be considered sympathetically, as they have been hitherto. The hon. Gentleman's supplementary question is extraordinary when set against the substantial amounts of aid that have been announced over the past few weeks.

Oral Answers to Questions — Missiles (Cost)

Mr. Kirkwood: asked the Secretary of State for Defence what has been the amount of money spent, in the past 10 years, on (a) missiles and (b) the platforms which launch them.

Mr. Pattie: Figures for the past 10 years are not readily available in the form required. However, I can tell the hon. Member that, in line with the Government's policy of shifting the emphasis from weapons platforms to the weapons themselves, the balance of spending has shifted substantially in favour of missiles. It is estimated that, whereas six years ago about 35p was spent on missiles for every pound spent on platforms, we are now spending about 50p on missiles for every pound spent on platforms.

Mr. Kirkwood: Is the Minister aware that that welcome trend will be appreciated by all Opposition Members who are worried about the increasing escalation in costs of planned military hardware procurement? Will the hon. Gentleman give an assurance that he will take into account the proposals contained in the British Atlantic Committee's report, "Diminishing the Nuclear Threat", that relate to rapid expenditure on platforms vis-a-vis missiles?

Mr. Pattie: I have read most carefully the publication to which the hon. Gentleman referred. The considerations set out in that publication are important and are among those that we must bear in mind.

Mr. Boyes: Will the Minister ensure that, when these missiles are deployed, they will not be under the command of half-crazed junkies? Many of my constituents are extremely worried that 13 United States air force personnel have recently been expelled from Greenham common because they were found to be drug addicts. I should like the Minister to give an assurance that that situation will not continue.

Mr. Pattie: That supplementary question hardly arises from the question on the Order Paper.

Oral Answers to Questions — Queen's Flight

Mr. Willie W. Hamilton: asked the Secretary of State for Defence if he will make a statement on the proposed modernisation of the Queen's Flight of aircraft; and what is the estimated total cost of this proposal.

Mr. Pattie: I have nothing at present to add to the reply that I gave to the question from my hon. Friend the Member for Welwyn Hatfield (Mr. Murphy) on 22 February 1984.

Mr. Hamilton: In view of the fact that within the hour the Chancellor of the Exchequer will be demanding further cuts in public expenditure—[HON. MEMBERS: "How do you know?"]—on services such as housing, health and

education, does the Minister agree that this sort of extravagance could be cut out without harm or damage to anyone?

Mr. Pattie: No.

Sir Geoffrey Finsberg: Does my hon. Friend accept that many of us feel that the modernisation of these aeroplanes is long overdue, especially as they are seen as examples of British aviation when they go abroad? We would rather have aircraft of the future than museum pieces.

Mr. Pattie: I accept what my hon. Friend says. He will be aware of the plans to which I have referred. We hope that the BAe146 will provide the satisfactory service that is necessary.

Oral Answers to Questions — Defence Expenditure

Mr. Cartwright: asked the Secretary of State for Defence whether he intends to carry out a major review of the United Kingdom's defence spending and commitments.

Mr. Heseltine: No. I am satisfied that the planned defence programme remains in balance with the resources available.

Mr. Cartwright: How does the Secretary of State square that somewhat complacent assessment with the recently published views of a distinguished group of military experts—including a former permanent secretary at his own Department—first, that no long-term strategy underlies the 1981 defence review and, secondly, that escalating defence costs require the establishment of a logic of priorities? How can that logic be established without any prior review?

Mr. Heseltine: There are machineries for determining priorities within the Ministry of Defence. I was able to answer as I did because, under the present Government, there has been an increase of about 23 per cent. in real terms in the defence budget. That increase was designed to give us the opportunity to pursue a round objective within the defence programme.

Mr. Franks: In view of recent speculation in the national media that the Trident programme may be abandoned because of escalating costs, will my right hon. Friend unequivocally state that the Trident programme remains part of Government policy?

Mr. Heseltine: I can give my hon. Friend that assurance.

Mr. Canavan: Will the Secretary of State admit that the Government have a distorted sense of priorities for public expenditure? Are they not planning to spend increasing billions of pounds of public money on the manufacture of weapons of war and mass destruction, while no doubt later this afternoon the Chancellor will be trying to justify further cuts in essential social services and in the National Health Service, including a 700 per cent. increase in prescription charges—

Mr. Speaker: Order. Questions must be confined to defence matters.

Mr. Heseltine: There is nothing distorted about a sense of priorities that has kept Europe at peace for the longest period in contemporary history.

Mr. Conway: I congratulate my right hon. Friend on the expansion of the Territorial Army and its better equipping. However, if he has an opportunity to review defence expenditure, will he consider further expanding the Territorial Army to take account of the growing waiting list of men who wish to enlist in its battalions?

Mr. Heseltine: I hope to make a statement on that subject in the near future which my hon. Friend may find acceptable.

Mr. Douglas: When reviewing defence expenditure, will the Secretary of State remember the British manufacturers who are worried about the tilting of the balance of scientific and technological expenditure towards the United States, which strengthens not only America's superiority in defence but its non-military superiority, too?

Mr. Heseltine: I shall bear that point very much in mind. I am constantly in touch with British industry about it. Among other things, I have had to remind British manufacturers of the commitment of the Labour party to reduce our conventional defence expenditure by nearly one third.

Mr. Neil Thorne: Will my right hon. Friend assure the House that he will not seek to restrict training—in particular, the training of infantry battalions—to England, and that regiments originating in Scotland, Wales and Northern Ireland will be trained in those locations, especially in view of the importance of those areas for the training of such regiments?

Mr. Heseltine: There cannot be a precise match between training and recruitment and the basing of the various parts of the armed services, but the Ministry of Defence is well aware of the vital part played by all parts of the country in our defence effort.

Mr. Denzil Davies: When will the Secretary of State stop playing with his MINIS and recognise that our defence commitments are hopelessly overstretched? Is it not a fact that, with the decline of its industrial base—especially under the present Government—Britain cannot afford Trident, a proper contribution to NATO, a fortress Falklands policy and interventions in almost any part of the world decreed by an American President?

Mr. Heseltine: We are maintaining our contributions to all those matters. However, I do not accept the right hon. Gentleman's definition of the North Atlantic Alliance with the Americans. If the right hon. Gentleman believes that the defence budget is overstretched, which vital interest would he abandon?

Oral Answers to Questions — Falkland Islands

Mr. Bellingham: asked the Secretary of State for Defence by what proportion he envisages the Falklands garrison will be reduced once the airport is completed.

Mr. Heseltine: The size and shape of the Falklands garrison depends on a number of factors, and I am not prepared to speculate about what kind of reductions will be possible when the new airfield is completed.

Mr. Bellingham: I am grateful to my right hon. Friend for that reply. Does he agree that while no effort should be spared in trying to resume normal relations with Argentina, it is difficult to do that when that country flatly

refuses to recognise the cessation of hostilities? Does he further agree that the purchase of British Airways TriStars as tankers will act as an effective force multiplier?

Mr. Heseltine: I agree that the capacity for air-to-air refuelling that the TriStars will give us is a substantial addition to our defence capabilities. I agree also that it would be a major gesture towards the restoration of normal relations in the south Atlantic if the Government of Argentina announced the formal end of hostilities.

Mr. Johnston: As the whole point of constructing the airport was to lessen the requirement to have troops on the island, the Secretary of State must have some idea about the consequences of its completion?

Mr. Heseltine: Yes, but the hon. Gentleman will appreciate that other factors beyond the ability to reinforce would have to be taken into account. That includes present diplomatic relations with Argentina.

Mr. Michael Marshall: Does my right hon. Friend accept—I understand that he cannot give precise figures—that a strategic value will come into play when the airport is completed? Will that not facilitate the process of future negotiations with Argentina and strengthen the Western Alliance?

Mr. Heseltine: It is widely felt that there are virtues associated with the Falkland Islands which for some time were not pursued as energetically as they might have been. We have that very much in mind.

Mr. Strang: Does the Secretary of State agree that the figures that he frequently quotes of the cost of fortress Falklands and the large additional costs of fuel and keeping soldiers there mean that the true cost of the garrison is about £1 billion a year? In those circumstances, does he accept that it would be quite outrageous if the Prime Minister were allowed to veto an offer by the Argentine Government to enter into negotiations without preconditions on sovereignty.

Mr. Heseltine: The hon. Gentleman's latter question is more for my right hon. and learned Friend the Foreign Secretary than for me. The House will be aware of the message that my right hon. Friend the Prime Minister sent to President Alfonsin when he was first elected. That is the best answer that I can give the hon. Gentleman on that matter.
As to the precise costs of the Falklands garrison, the hon. Gentleman's figures is very much in excess of the real running costs because he has included capital replacement costs of a substantial amount of equipment that was lost in the Falklands war.

Sir John Biggs-Davison: Do not those who would throw away the sacrifices of our fighting men and rat on the Falklands grossly exaggerate the future costs of defending them? When the airfield is completed, will there not be considerable savings and will not the matter be seen in proper proportion?

Mr. Heseltine: I am sure that my hon. Friend is correct. There will be potentially significant savings. That is one of the reasons why we took the decision to invest in the airfield.

Mr. McNamara: With regard to people making a profit at the expense of our service men, what will be the true cost of the land for the proposed airfield? Will it be


the usual grazing price paid for land at existing use value or will it have an inflated value of £273,000 which has been widely reported in the press?

Mr. Heseltine: The hon. Gentleman will be aware that this matter is being negotiated by my right hon. Friend the Secretary of State for the Environment, who deals with property matters on behalf of the Government. The contract has not yet been signed. All these matters are being taken into account in the current negotiations.

Oral Answers to Questions — Cruise Missiles

Mr. Flannery: asked the Secretary of State for Defence by what date the next flight of 16 cruise missiles will be operational in the United Kingdom.

Mr. Parry: asked the Secretary of State for Defence by what date he expects the next flight of 16 cruise missiles to be operational in the United Kingdom.

The Minister of State for the Armed Forces (Mr. John Stanley): I cannot add to the reply that my right hon. Friend the Secretary of State for Defence gave to the hon. Member for Woolwich (Mr. Cartwright) on 17 January.

Mr. Flannery: Does the Minister seriously think that the British people will feel reassured by that answer? [HON. MEMBERS: "Yes."] Is he not eager to conceal the nocturnal ramblings of these horrific weapons around our countryside because the British people have clearly shown that they oppose the deployment of cruise missiles? If not, why does he not bring them all out in full daylight and tell us when they will all come out?

Mr. Stanley: I am sure that the great majority of the British people will have been delighted that the claim made by CND that cruise missiles could not be deployed operationally has been falsified by events.

Mr. Parry: Will cruise missiles be sited at the Burtonwood base? Is the Minister aware that the people of Merseyside are utterly opposed to any such siting?

Mr. Stanley: The bases for cruise missiles remain as they were when deployment was first announced. As to operational deployment, the hon. Gentleman will be aware that we give no advance information on the location of nuclear weapons.

Mr. Warren: Will my hon. Friend make it clear to the House that cruise missiles are not a first-strike weapon and that NATO does not have a first-strike nuclear policy?

Mr. Stanley: My hon. Friend is entirely right on both points.

Mr. D. E. Thomas: As the House has spent considerable time debating the relatively small numbers of land-based cruise missiles, will the Minister make a full statement to the House before the deployment in June of sea-launched cruise missiles? Will he also make urgent representations to his American counterpart about the American philosophy on the use of these weapons, which is that they should form a strategic reserve after world war three?

Mr. Stanley: The hon. Gentleman will be aware that the question of sea-launched cruise missiles is for the American Government, as they are not deployed by NATO. He referred to the small numbers of ground-launched cruise missiles in this country. I hope that, by

way of perspective, he will take into account of the fact that the numbers of SS20s facing the West have been trebled since the end of 1979, when there were 81 missiles. There are now 243 SS20s facing the West—a total of 729 SS20s warheads. I hope that Opposition Members will take greater account of the extent of the threat facing us.

Mr. Cormack: Will my hon. Friend see whether he can find enough money in his budget to send the hon. Member for Sheffield, Hillsborough (Mr. Flannery) and his hon. Friends to see the Red square parade next year, so that they might better understand just why cruise is necessary?

Mr. Stanley: I am grateful to my hon. Friend for his comments. I am sure that the hon. Members to whom he has referred would find such a visit instructive.

Mr. Hoyle: Is the hon. Gentleman aware that his Department's refusal to say whether missiles are based at Burtonwood is of great concern to the people of Warrington and the north-west? Should they not be allowed to know the dangers that they are facing?

Mr. Stanley: The hon. Gentleman will be aware that, throughout the period of every Labour Government since the war, it has been the policy of such Governments, as well as of Conservative Governments, not to say where nuclear weapons will be deployed operationally.

Mr. Bill Walker: Does my hon. Friend agree that, in addition to the many SS20s facing these shores, the Soviet Union has a substantial number of submarines already equipped with cruise missiles, which represent another factor that we must take into consideration?

Mr. Stanley: I am grateful to my hon. Friend for that remark. He is entirely right to say that the Soviet Union has a substantial programme for bringing into operational service strategic cruise missiles, and that includes sea-launched as well as ground-launched missiles.

Mr. Denzil Davies: Why do not the Government accept and admit that the deployment of cruise missiles has been a terrible mistake and at least agree not to deploy any more? Has not deployment created a mood of isolationism in both Europe and the United States and made it much more difficult to get any consensus on defence policy in Britain?

Mr. Stanley: What would have been a great mistake would have been for this Government not to have continued with the twin-track decision, the foundations of which were so well laid by our predecessors.

Oral Answers to Questions — Royal Ordnance Factories

Mr. Fisher: asked the Secretary of State for Defence whether he will ensure that there is no diminution of the legal and trade union rights of any employee working for or in the royal ordnance factories.

Mr. Pattie: The Transfer of Undertakings (Protection of Employment) Regulations 1981 provide for the automatic transfer of existing trade unions' rights from one undertaking to another. Employees transferring to the incorporated royal ordnance factories organisation will therefore continue to be entitled to remain members of, and be represented in negotiations by, the same trade unions to which they currently belong in their Civil Service employment.

Mr. Fisher: Will the Minister address himself to the legal rights and, in particular, the pension rights of ROF employees? Will he say when he will publish details on pension rights, what they will cost, how they will be funded, and what the terms will be?

Mr. Pattie: As the hon. Gentleman knows, the Standing Committee will deal with those matters shortly. I hope that the information he seeks will be freely available by then.

Mr. Greenway: Will my hon. Friend confirm that it is against Queen's Regulations for service personnel to join trade unions and that there is absolutely no thought in his mind about changing the position?

Mr. Pattie: That is correct.

Mr. McNamara: Will the Minister reconsider his reply to my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher)? Tradesmen are entitled to retain their trade union membership in the services so long as they do not play an active part. That is readily understood and has been practised in the armed services for generations.

Mr. Pattie: As the hon. Gentleman knows, that membership has a particular form of restriction attached to it, which was the spirit of the question asked by my hon. Friend the Member for Ealing, North (Mr. Greenway).

Oral Answers to Questions — Falkland Islands

Mr. Dalyell: asked the Secretary of State for Defence what has been the cost of his Department's facility trips to the Falkland Islands (a) for the journalists working on national newspapers, (b) journalists working in local newspapers and (c) journalists working with radio and television.

Mr. Stanley: Complete information going back to the Falklands conflict is not available, but over the past six months the notional cost of (a) was about £5,000, (b) about £36,000 and (c) about £29,000.

Mr. Dalyell: What do the Government expect to get out of those trips?

Mr. Stanley: We believe, as apparently did our predecessors, who followed the same practice, that it is of value for members of the national and local media to be able to cover defence activities outside the United Kingdom.

Mr. Leigh: In view of the fact that the hon. Member for Linlithgow (Mr. Dalyell) has asked 696 questions since 1982 concerning the Falklands campaign—[Interruption.]

Mr. Speaker: Order. The hon. Member must confine his question to defence matters.

Mr. Leigh: Does my hon. Friend believe that, instead of inviting journalists to the Falklands, it might be cheaper to invite them to the hon. Gentleman's castle in Scotland, which I believe is known as The Binns, so that he can bore journalists instead of the House?

Mr. Stanley: rose—

Mr. Dalyell: rose—

Mr. Speaker: Order. I know what the hon. Member for Linlithgow (Mr. Dalyell) will say, but that will delay Question Time. I sympathise with the hon. Gentleman, but I think that we should hear the Minister's answer.

Mr. Stanley: It is probable that the cost of facilities provided for members of the media is somewhat less than the cost of answering the questions tabled by the hon. Member for Linlithgow (Mr. Dalyell).

Mr. Dalyell: My questions can be costed only in relation to policy, which is presumably not very expensive because Ministers often know the answers; otherwise the answers relate to facts that should be available in any case. The real costs—

Mr. Speaker: Order. I thought that the hon. Gentleman was seeking to defend himself against a charge. I cannot allow an extension of his question.

Oral Answers to Questions — Helicopters

Mr. Farr: asked the Secretary of State for Defence if he will make a statement on plans for co-operation with Italy for future helicopter production for defence purposes.

Mr. Nicholls: asked the Secretary of State for Defence what is the present position as regards the European helicopter project EH101; and if he will make a statement.

Mr. Pattie: The main development contract for the EH101 helicopter was signed in Rome last week, on 7 March. This completes the launching process into programme full development so that we can now look forward to the successful development and introduction into naval and commercial service of this important aircraft, in collaboration with our Italian partners.

Mr. Farr: I thank my hon. Friend for that information. Can he say how many helicopters will be ordered for use by the Royal Navy and what progress the Ministry of Defence is making towards getting a British engine, such as the one produced by Rolls-Royce, to power the new helicopter?

Mr. Pattie: The Royal Navy order will be for about 70 aeroplanes. It is expected that the helicopter will initially have American GE700 engines, but we hope to announce soon a collaborative venture with France on the RTM322 engine. If the venture is successful, the engine will be available for inclusion later in the life of the aeroplane.

Mr. Nicholls: Will my hon. Friend accept that his announcement, coupled with the announcement last month of about £60 million launch aid for Westland Aircraft's helicopters, will be welcome news throughout the west country, not just in the Yeovil area?

Mr. Pattie: I am grateful to my hon. Friend for that comment.

Oral Answers to Questions — Greenham Common

Mr. Andrew MacKay: asked the Secretary of State for Defence if he will make a statement on security at the Greenham common base.

Mr. Stanley: I cannot add to the reply that I gave my hon. Friend on 17 January.

Mr. MacKay: Will my hon. Friend take this opportunity to congratulate all the British and American personnel who took part in last Friday's exercise involving cruise missile launchers, the success of which was satisfying to a great many patriotic people in this country?

Mr. Stanley: I am grateful to my hon. Friend. I should like to echo his congratulations to the American and British service personnel involved. I should also like to thank the Thames Valley police.

Mr. Skinner: Will the Minister confirm that since the Yanks have been at Greenham common, several of them have been sent back to America because they were high on drugs? Was that the reason why the base held that operation in the middle of the night? Is it not ironic that 300 or 400 journalists can go trailing round a few cricketers in New Zealand and Pakistan, yet little information has been shed on this important matter, when the life and death of the nation could be decided, in some cases, by Americans on drugs?

Mr. Stanley: If the hon. Gentleman had seen the answers that I have given some hon. Members recently, he would have seen that all the individuals concerned were, we understand, in non-sensitive clerical posts.

Oral Answers to Questions — East Atlantic (Escort Vessels)

Sir Patrick Wall: asked the Secretary of State for Defence what plans he has to increase the number of escort vessels in the North Atlantic Treaty Organisation's east Atlantic area.

Mr. Stanley: I announced in November that two additional frigates will be retained in the Fleet until April 1985. We are continuing to assess the optimum balance to be struck between expenditure on surface ships and on submarines, and also between expenditure on ship numbers and on ship capabilities.

Sir Patrick Wall: Is my hon. Friend aware that both SACLANT and CINCHAN have said that we are so deficient in escort vessels that we cannot carry out our operational tasks? Will my hon. Friend remember the 50 American destroyers that we were given in the last war? Would it not be better to mothball old frigates than sell or scrap them?

Mr. Stanley: Of course I am aware of what my hon. Friend says about the views of the naval commanders to whom he referred. However, we shall have increased defence expenditure by about 20 per cent. in real terms by 1986–87. We have not yet taken a final decision on whether we shall create a standby squadron or put the ships that would go into the standby squadron into the running fleet.

Mr. Duffy: Is the Minister aware that only three destroyers and seven frigates are currently on order, that only six frigates have been ordered by the Government since May 1979, and that one destroyer and five frigates are to be withdrawn from the active fleet this year, and six frigates next year? Is he further aware that the result will be that by the late 1980s we shall have an operational fleet of only about 20 surface ships, not even the 35 to 40 operational out of the 50 that the Minister hoped would be available to the fleet?

Mr. Stanley: The hon. Gentleman must take into account the fact that as well as numbers of ships there is the crucial matter of the capabilities of the ships and their survivability. I hope that he will take into account the fact that spending on the Royal Navy in real terms is about £750 million more than it was when we came into office.

Mr. Sayeed: Will my hon. Friend note the effective trials of the Scads-Reliant-Arapaho project? Will he consider assisting the merchant fleet itself in the north Atlantic by increasing the capability of merchantmen to defend themselves?

Mr. Stanley: I assure my hon. Friend that that matter is under active consideration. I can confirm from my recent visit to the Reliant that the Arapaho concept is extremely valuable and will be of great use to us operationally.

Mr. McNamara: When will the Government reply specifically to the charges of the C-in-C Channel, Admiral Staveley, about the shortage of destroyers and frigates, particularly minesweeper-hunters, on which the admiral was not prepared to put a figure, for defence reasons? The Government are compeletely naked, because they are distorting their defence expenditure by puting the Navy's budget into Trident rather than into conventional warships.

Mr. Stanley: That is not correct, as can be seen from the figures for the percentage of the Trident programme in the defence budget. Of course, every operational commander could do with more assets. However, the central point that the House will want to take into account is that if we had the expenditure programme on defence that the Labour party promised us at the last election expenditure would be about one third down on what it is now.

Oral Answers to Questions — Ship-to-ship Missiles

Mr. Sackville: asked the Secretary of State for Defence when he now expects to make a decision on procurement of a ship-to-ship missile for the Royal Navy.

The Under-Secretary of State for Defence Procurement (Mr. John Lee): Very shortly.

Mr. Sackville: In view of my right hon. Friend's recently announced plans for more common policy meetings between the services, does the Minister agree that it would be a step in the right direction for the Royal Navy to procure the same anti-ship missile system as the Royal Air Force and the Fleet Air Arm?

Mr. Lee: The excellent plans that the Secretary of State announced yesterday have no direct bearing on this competition. Obviously my hon. Friend is right in saying that communality plays a part in our procurement policy, but I remind him that air-launched Sea Eagle is in service with the Royal Air Force and the surface Harpoon and Exocet with the Royal Navy.

Oral Answers to Questions — Cruise Missiles

Mr. Norman Atkinson: asked the Secretary of State for Defence if he will describe the command structure and to whom the United States military personnel are accountable in regard to the defence of the cruise missiles bases in the United Kingdom.

Mr. Stanley: As has been the case for many years, United States military personnel based in this country are accountable to their military superiors in their national chain of command, as are, for instance, United Kingdom military personnel based in Germany. In addition, in exercising day-to-day operational control of the cruise


missile defence force, the United States Air Force commander acts in accordance with a policy approved by both Governments.

Mr. Atkinson: Does the Minister recognise that it is outrageous that foreign nationals in Britain should not be subject to British jurisdiction? Is he aware that, although both the Royal Air Force and the American forces have denied that warning shots were fired at women at Greenham common recently, the women still insist that that happened? Does he agree that under the arrangements that he announced it is impossible for the women to subpoena American troops and to bring them to court to answer the charges laid by the women?

Mr. Stanley: The hon. Member does not completely understand the operation of the Visiting Forces Act 1952. Perhaps he would care to read the excellent speech by the Under-Secretary of State for the Home Department, my hon. Friend the Member for Putney (Mr. Mellor), on 19 December, where that is fully set out. There is no foundation for the hon. Gentleman's allegation that shots were fired by USAF service men at Greenham common. I am surprised that the hon. Gentleman keeps repeating an allegation that has no foundation.

Mr. Denzil Davies: Has not the Minister made a shameful admission, to the effect that he and his Department have no ultimate responsibility for American troops in Britain? Is not the constitutional position clear? American troops are responsible to their officers and then to their commander-in-chief, who is the President of the United States. No bit of paper can alter that constitutional fact.

Mr. Stanley: The right hon. Gentleman ignores the fact that the legislation under which American troops in Britain operate today has operated for 30 years under Governments of all political complexions.

Oral Answers to Questions — US Air-land Battle Plan

Mr. Stan Thorne: asked the Secretary of State for Defence whether the united Kingdom Government have been consulted about the United States air-land battle plan.

Mr. Stanley: Air-land battle has been official United States army doctrine since 1982 and applies to United States army forces worldwide. NATO nations, including the United Kingdom, have been made aware of this doctrine.

Mr. Thorne: Will the Minister confirm that this plan involves first strike use of cruise missiles from the United Kingdom?

Mr. Stanley: No, Sir, it does not.

Oral Answers to Questions — Major Weapons Systems

Mr. D. E. Thomas: asked the Secretary of State for Defence if he will publish in the defence White Paper a list of major weapons systems separately classified as strategic, intermediate and conventional.

Mr. Heseltine: The Defence White Paper for 1984 will, as in previous years, have a section on the balance of forces, which will cover deployment of nuclear and conventional weapon systems and will include charts showing numerical comparisons.

Mr. Thomas: Will the Secretary of State explain in the defence White Paper why land-based cruise missiles are classified as intermediate weapons, whereas sea-launched cruise missiles, which will be deployed in June, are classified as strategic weapons related to the American national deterrent?

Mr. Heseltine: We can try to deal with that in the White Paper, which will seek to explain specifically the large and comprehensive range of cruise missiles available to the Soviet Union, which must be set in balance with those of the United States.

Oral Answers to Questions — Falkland Islands

Mr. Soames: asked the Secretary of State for Defence what is the average tour of duty for an infantry regiment in the Falkland Islands.

Mr. Stanley: The average tour of duty for an infantry battalion is five months, including transit time.

Mr. Soames: Will my hon. Friend take time today to thank our fighting troops in the Falklands, who do a marvellous job? Does he agree that the quicker we can arrive at a just, honourable and lasting peace with Argentina and bring the troops home, the better it will be?

Mr. Stanley: I am glad to join my hon. Friend in paying tribute to the forces of all three services in the Falkland Islands. It is the Government's wish that the Argentine Government should bring about a long-delayed but much-needed cessation of hostilities.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Gould: asked the Prime Minister if she will list her official engagements for Tuesday 13 March.

The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in the House I shall be having fun-her meetings later today. This evening I hope to have an audience of Her Majesty the Queen.

Mr. Gould: If expenditure on the common agricultural policy were brought under control, which seems unlikely, would not that remove the need for an increase in EC tax revenue? In either case, can the Prime Minister confirm that, at a time when other public spending programmes are being savaged, there will be no increase in the 11·2 per cent. of total VAT revenues that we are currently obliged to pay to the Common Market?

The Prime Minister: There would have to be a sharp reduction in the amount spent on the common agricultural policy, not merely bringing it under control. The hon. Gentleman will recall that a much bigger proportion of the budget is spent on the CAP than was envisaged when we joined the Community. Control of it would be insufficient to obviate the second of our demands, which is that there must be an equitable system of financing EC expenditure. That is separate from the amount spent, and we must solve that issue once and for all.

Mr. Rost: Will the Prime Minister today send a message to Mr. Arthur Scargill reminding him that,


although he may be a Marxist, we live in a democracy where those who do not wish to join a suicidal strike should be given the opportunity to say so through the ballot box, rather than be coerced, intimidated and bullied by mobs of flying pickets?

The Prime Minister: As my hon. Friend is aware, people have a right to go to their places of work and to go about their lawful duties peaceably. Any difficulty with the maintenance of peace and the enforcement of criminal law is the responsibility of the chief officer of police concerned. If there is violence or intimidation on picket lines, the overwhelming majority of our people would give their full support to the police in dealing with those matters, as would the overwhelming majority of miners.

Mr. Maginnis: Is the Prime Minister aware that for the second time in a few months a farmer in my constituency has been murdered by the IRA, close to the frontier with the Irish Republic? What message does she have for people who are likely to be victims, such as Ronnie Funston, of the IRA's genocide along the frontier, and will she instruct the Secretary of State for Northern Ireland to protect my constituents? It can be done.

The Prime Minister: The majority of hon. Members would join me in praising the work of the Royal Ulster Constabulary, the Ulster Defence Regiment and the Army in protecting the citizens of Northern Ireland and in trying to eradicate violence. They would be very grateful if we were to show our appreciation.

Mr. Terry Davis: asked the Prime Minister if she will list her official engagements for Tuesday 13 March.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Davis: Will the right hon. Lady find time today, perhaps during her Chancellor's Budget statement, to reflect on that part of the Budget that has already been announced—the increase of 15 per cent. in the charges paid by people who are unfortunate enough to be ill? Will she explain why her Government have singled out this group of people to be treated so unfairly?

The Prime Minister: The prescription charges have gone up, but they are a smaller proportion now of total expenditure than they were some time ago. This Government have an excellent record over the National Health Service. The Labour Government could not match either the expenditure or the number of patients who have been treated under this Government on the National Health Service.

Mr. Chope: Will my right hon. Friend take the opportunity of inviting the Leader of the Opposition to condemn the violent picketing by miners on the picket lines today?

The Prime Minister: I join my hon. Friend in hoping that the right hon. Gentleman will condemn any intimidation and violence or mass picketing that may have occurred. Most people would be glad to condemn intimidation, mass picketing and violence on the picket line.

Mr. Maxton: asked the Prime Minister if she will list her official engagements for Tuesday 13 March.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Maxton: Will the Prime Minister explain what is so special about her hon. Friend the Member for Edinburgh, Central (Mr. Fletcher) that he can bungle the Stonefield Vehicles Ltd. issue, preside over the selling of a college of education at 10 per cent. of its valuation price, make indiscreet remarks to the press that have since been repudiated by the Secretary of State for Scotland and a Treasury minute, and yet still remain part of her Government?

The Prime Minister: I read the PAC report and the reply, and there was no personal condemnation of my hon. Friend the Under-Secretary. I deeply resent what the hon. Gentleman said, and I have nothing to add to the Government's formal reply to the Committee's report that was published yesterday. I see no reason to condemn my hon. Friend the Under-Secretary of State who is responsible for corporate and consumer affairs.

Mr. Couchman: During her busy day, will my right hon. Friend seek time to contact Mr. Ian MacGregor to assure him of the support of all sensible hon. Members in his efforts to bring viability to the coal industry?

The Prime Minister: I shall be glad to do so. Mr. MacGregor has demonstrated his faith in the future of the coal industry by recommending the Government to invest in the Asfordby coal mine, a recommendation which the Government accepted. This Government's record is that we have invested the equivalent of £2 million a day for every day that we have been in power. That is faith in the future of the coal industry.

Mr. Kinnock: Will the Prime Minister understand once and for all that I now condemn, and always have condemned, violence in pursuit of industrial disputes, even when it occurs among people who feel impotent in the face of the destruction of their jobs, their industry and their communities? Will she now desist, and encourage her hon. Friends to desist, from trying to make cheap points, which do not bother me, but which are absolutely contemptuous of the interests of many ordinary people in our country?

The Prime Minister: I welcome what the right hon. Gentleman has said. I therefore accept and hope that he will fully protect the right of ordinary people to go to their place of work unhindered by unlawful picketing.

Mr. Barron: asked the Prime Minister if she will list her official engagements for Tuesday 13 March.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Barron: Will the Prime Minister tell the House whether she has ever met Mr. Jamil Amyuni, who is the middle-east director of Cementation International? If so, can she tell us where it was and what was discussed?

The Prime Minister: I have met most people in the construction industry at one time or another.

Mr. Hayward: Does my right hon. Friend agree that the recently announced investment in Wrexham by a Japanese high technology company, following on the announcements of American companies, confirms that the British economy is now on a sound track, which I hope will be further confirmed later this afternoon?

The Prime Minister: The record of the electronics industry in Britain is extremely good. In the United


Kingdom, the electronics industry is expecting to grow at least 12 per cent. during 1984, with data processing growing at 32 per cent., and integrated circuits at 21 per cent. There was also, of course, very good news today. Today's figures indicate that industrial production in the three months to January rose 1·5 per cent. on the three months previously, and is now running 4·5 per cent. above the same period a year ago.

Mr. Tim Smith: asked the Prime Minister if she will list her official engagements for Tuesday 13 March.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Tim Smith: Now that the contract of the chief executive of the Property Services Agency has been terminated by mutual agreement, will my right hon. Friend do everything that she can to ensure that his successor has the proper qualifications and experience to root out fraud and corruption at PSA, and to implement proper management control systems?

The Prime Minister: My hon. Friend is correct. The service contract of the chief executive of the Property Services Agency has been terminated by mutual agreement. My right hon. Friend the Secretary of State will be answering a question later today. He is very anxious that the task of following up the Wardale Touche Ross report should be pursued vigorously, and he came to the conclusion that the task should be placed in other hands. I shall, of course, take fully into account what my hon. Friend said about finding a suitable replacement. In the meantime, I should like to thank Mr. Alfred for the work that he has done while he has been at the Property Services Agency.

Mr. Eadie: If the right hon. Lady is feeling inclined to send messages today, will she send a message to Mr. Ian MacGregor, the chairman of the National Coal Board, telling him that conciliation is the language of her Government, rather than confrontation, and that, if he continues to engender conflict in the mining industry, she will ask for his resignation?

The Prime Minister: There is no confrontation on the part of Mr. MacGregor. A person who has recommended as much investment into the coal industry as he has is not in a position of confrontation, but is demonstrating his faith in the future. The Government will not intervene in this matter. The Government will leave the National Coal Board to deal with the matter as it thinks fit.

Mr. Favell: Sympathising with those miners unfortunate enough to work at uneconomic pits, but does my right hon. Friend agree that high fuel costs contribute to job losses in other industries?

The Prime Minister: Yes. If we were able to concentrate much more on the profitable pits the coal industry would have an even better future, because the price of coal might then be lower, and therefore we should be able to have far more exports than we do now. If major contracts with the Central Electricity Generating Board could be fulfilled at a lower price, the price of electricity could thus be brought down.

Mr. Alton: Has the Prime Minister had the chance to consider the implications of the recently published Ministry of Defence 1953 document which demonstrates conclusively that British service men were deliberately

exposed to the effects of radiation during the atomic tests in the south Pacific in the 1950s? Does she not agree that it is time to review section 10 of the Crown Proceedings Act 1947 to allow service men to have the right to sue? Does she not further agree that it is time to review the compensation procedure available to service men? Will she make available all the information that was published at that time, which is obviously of great concern to many of the widows and bereaved relatives of these men?

The Prime Minister: As the hon. Gentleman is aware, I have answered many questions on this in detail. He will be aware that a very extensive survey is taking place of those who were involved in the tests. Of course, he and I will await the results, but it will take quite a time to get them.

Mr. Malone: asked the Prime Minister if she will list her official engagements for Tuesday 13 March.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Malone: Will my right hon. Friend confirm that the coal industry is now consuming £17 per year for every man, woman and child in this country and that the annual cost of support is one fifth of the cost of running the National Health Service? Does she agree that it is the Government and Conservative Members who support the future of the coal industry, and the Opposition and.Mr. Scargill who are interested only in supporting the past?

The Prime Minister: The Government's record of investment in the coal industry is unrivalled. The taxpayers have demonstrated their faith in the industry to the extent that total public expenditure on the coal industry this year will be £1,388 million.

Mr. Nellist: Mr. Speaker—[Interruption.] Mr. Speaker—[Interruption.]

Mr. Speaker: Order. We have a very important day ahead of us. Mr. Nellist.

Mr. Nellist: Does the Prime Minister agree that, having given the miners four years' continuous advice to increase production, when productivity at the coal face or per man is increased to produce a 55 million-tonne stockpile at the pithead and the power stations and the miners ask for their share they are given 25,000 redundancies? Is she surprised at the anger over the destruction of that industry?

The Prime Minister: On productivity, "Plan for Coal" called for an increase of 4 per cent. per year. That was in 1974. There has been an increase of only 4·7 per cent. in 10 years. Productivity actually fell in the late 1970s and reached the 4 per cent. target only last year. More than 300 coal mines were closed in 11 years of Labour Government. In nine years of Conservative Government only 92 pit closures occurred.

Mr. Dalyell: On a point of order, Mr. Speaker. In relation to the attack made on me—[Interruption.]

Mr. Speaker: Order. I gave the hon. Gentleman an opportunity at Question Time, but I will give him another one.

Mr. Dalyell: Is not the reality that answering questions becomes very expensive in circumstances in which Governments have something to hide?

Mr. Speaker: Fortunately, I am not responsible for the answers to questions.

Concessionary Television Licences for State Retirement Pensioners

Mr. Allen McKay: I beg to move,
That leave be given to bring in a Bill to provide for concessionary television licences for state retirement pensioners and others.
I am aware of the importance of our later debate, but the House should also be aware of the importance of the subject of my Bill and its effect on 9 million pensioners. On 6 October 1982—[Interruption.]

Mr. Speaker: Order. Will the House please listen with attention to the hon. Gentleman?

Mr. McKay: On 6 October 1982, I presented a similar Bill on which the House divided. That Bill was accepted by 187 votes to nil, clearly expressing the will of the House. On 19 April 1983 the House again accepted the Bill but unfortunately, yet again, the Government did not give it time to proceed any further. This is the third time of asking. Acceptance of today's Bill will reinforce the will of the House and is in accordance with my stated intention to pursue the matter until it is finally resolved.
The House will recall that the Wireless Telegraphy (Broadcast Licence Charges and Exemption) Regulations 1970 which brought in concessionary licences was extended by my right hon. Friend the Member for Morley and Leeds. South (Mr. Rees) when he was Home Secretary. On 23 February 1983 the then Secretary of State, now Lord Whitelaw, announced a further extension of the provisions following representations from my hon. Friend the Member for Bolsover (Mr. Skinner). That extension was to provide for physically disabled and mentally disabled persons living in local authority residential accommodation and residents in those categories of sheltered housing in which elderly persons now receive the concession. If my information is correct—it comes from a good source—it is to be regretted that the promise in that statement has not yet been carried out.
In addition, some local authorities, such as my own, Barnsley metropolitan authority, help senior citizens not in receipt of a concessionary licence by making a small contribution towards the cost of a licence. It is not inconceivable that such contributions will disappear owing to the Government's rate-capping Bill.
The present national scheme does not take into account the fact that a large number of pensioners are debarred because their accommodation does not come within the rules of the scheme, although they live in circumstances which are the same as, or little different from, the circumstances of those who are eligible. While 550,000 pensioners receive concessionary licences, 4·8 million pensioner households do not—some in the public but most in the private rented and owner-occupied sector. This is clearly most inequitable, and it is a matter of concern to many right hon. and hon. Members and certainly to all pensioners and pensioner organisations.
In a year in which the cost of a television licence is likely to be increased substantially, which will make the present VAT position much worse, the Government should take action. My Bill will give them a chance to do so. The right approach is undoubtedly to increase pensions

and benefits to a level that will enable people to meet the cost of a licence themselves, but obviously this will not happen. Until it does, there is need for a concessionary system, but such a system must be fair and equitable.
Television is necessary to millions of pensioners. It provides entertainment, companionship, a sense of security, and information to those unable to buy newspapers. It is particularly necessary to those in isolated places or isolated within the community. The present situation causes bitterness and animosity. To cover those households without non-pensioners would cost £170 million. To cover all pensioners would cost £250 million. This could be raised by increasing the basic rate of tax by one quarter of a penny and VAT by one third of 1 per cent.
But why not dispense with television licensing altogether and avoid all the anomalies? [Interruption.]

Mr. Dennis Canavan: On a point of order, Mr. Speaker. Is it in order for the hooligans on the Government Benches to be hampering my hon. Friend's valuable speech? If we did it during the Chancellor's speech, I have no doubt that you would call us to order.

Mr. Speaker: I do not think that I need any help from the House. The House is waiting for a very important statement, but the hon. Member has every right, as have all Back Benchers, to be heard in silence.

Mr. McKay: Thank you, Mr. Speaker. It would be remiss for Back Benchers to give up Back-Bench time to Front Bench Members.
Why not dispense with television licensing altogether, thus avoiding possible anomalies, the cost of £715 million being funded by raising the basic rate of income lax three quarters of a penny and VAT by 1 per cent.? My party is pledged, on forming the next Government, to phase out licences for state retirement pensioners during the lifetime of that Parliament.
The Chancellor can at this late stage take three opportunities. He can announce that concessions will be extended to all state retired pensioners. He can announce the phasing out of licences for those state retired pensioners within the remaining lifetime of this Parliament. He can announce that my Bill, if accepted, will be given Government time and Government blessing. The Bill, if supported and allowed to proceed, w ill allow us to discuss, argue, question and explore the whole question and bring in an Act protecting existing recipients and a system of concessionary TV licensing which will be more fair and equitable to all.

Question put and agreed to.

Bill ordered to be brought in by Mr. Allen McKay, Mr. Joe Ashton, Mr. Geoffrey Lofthouse, Mr. William O'Brien, Mr. Alec Woodall, Mr. David Winnick, Mr. Peter Hardy, Mr. Michael Welsh, Mr. Martin Flannery, Mr. Derek Foster, and Mr. Dennis Skinner.

Mr. Allen McKay accordingly presented a Bill to provide for concessionary television licences for state retirement pensioners and others: And the same was read the First time; and ordered to be read a Second time upon Friday 23 March and to be printed. [Bill 123.]

Royal Assent

Mr. Speaker: I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Acts:


1. Consolidated Fund Act 1984.
2. Restrictive Trade Practices (Stock Exchange) Act 1984.
3. Occupiers' Liability Act 1984.
4. Tourism (Overseas Promotion) (Scotland) Act 1984.
5. Merchant Shipping Act 1984.
6. Education (Amendment) (Scotland) Act 1984.
7. Pensions Commutation Act 1984.
8. Orkney Islands Council Order Confirmation Act 1984.
9. Western Isles Islands Council (Kallin Pier, Harbour Jurisdiction) Order Confirmation Act 1984.
10. Ullapool Harbour Order Confirmation Act 1984.

WAYS AND MEANS

Budget Statement

Mr. Deputy Speaker (Mr. Harold Walker): Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that, at the end of the Chancellor's speech, as in past years, copies of the Budget resolutions will not be handed around in the Chamber but will be available to hon. Members in the Vote Office.

INTRODUCTION

The Chancellor of the Exchequer (Mr. Nigel Lawson): This Budget will set the Government's course for this Parliament.
There will be no letting up in our determination to defeat inflation. We shall continue the policies that we have followed consistently since 1979. These policies provide the only way to achieve our ultimate objective of stable prices. To abandon them would be to risk renewed inflation and much higher unemployment. As a result of our determined efforts, inflation is at its lowest level since the 1960s. Economic recovery is well under way and employment is growing.
These achievements are a tribute to the courage and foresight of the five Budgets presented by my distinguished predecessor, whose duties unfortunately keep him in Brussels today.
I shall do nothing today to compromise those successes. But there is much that I can do to build upon them.
My Budget today has two themes—first, the further reduction of inflation; and, second, a series of tax reforms designed to enable the economy to work better, reforms to stimulate enterprise and set British business on the road to profitable expansion, reforms that will help to bring new jobs.
I shall begin by reviewing the economic background to the Budget. I shall then deal with the medium-term financial strategy; with monetary policy and the monetary targets for next year; and with public borrowing and the appropriate PSBR for the coming year. I shall then turn to public expenditure, including the prospects for the longer term. Finally, I shall deal with taxation and the changes in the structure of taxation which will pave the way for cuts in taxes in subsequent years, for this will be a tax reform Budget.
As usual, a number of press releases, filling out the details of my tax proposals, will be available from the Vote Office as soon as I have sat down.

THE ECONOMIC BACKGROUND

I start with the economic background.

Since 1980, inflation has fallen steadily from a peak of over 20 per cent. For last year as a whole it was down to about 4½ per cent., the lowest figure since the 1960s. And with lower inflation have come lower interest rates.

This in turn has led to an economic recovery whose underlying strength is now beyond dispute. Whereas in some previous cycles recovery has come from a self-defeating stimulus to monetary demand, this time it has sprung from sound finance and honest money. Lower inflation and lower interest rates benefit industry, business and consumer confidence alike.

Across the economy, total money incomes grew in 1983 by about 8 per cent., of which 3 per cent. represented real growth in output. Although there is still room for improvement, this is a very much healthier division between inflation and real growth than the nation experienced in the 1970s. Output in the second half of 1983 is now reckoned to have exceeded the previous peak, before the world recession set in, and is still rising strongly.

Productivity, too, has continued to improve rapidly. Just as over the past year many have wrongly predicted an end to the recovery, so some have tried to dismiss the sharp rise in productivity as a flash in the pan. Yet in 1983 manufacturing productivity grew by 6 per cent. for the second year in succession. Unit labour costs across the whole economy are likely to show the smallest annual increase since the 1960s. This has allowed a welcome and necessary recovery in real levels of profitability.

Higher profits lead to more jobs. The number of people in work increased by about 80,000 between March and September last year. The loss of jobs in manufacturing has slowed down sharply, while jobs in services increased by getting on for 200,000 in the first nine months of last year.

But further progress is needed. Although our unit wage costs in manufacturing rose by under 3 per cent. last year, our three biggest competitors, the United States, Japan and Germany, did better. The employment prospect would be significantly improved if a bigger contribution to improved cost performance were to come from lower pay rises.

Demand, output, profits and employment all rose last year. Home demand has played the major part in the recovery so far. Lower inflation reduced people's need to save, and real incomes rose. Personal consumption increased by over 3½ per cent. compared with 1982. Fixed investment rose rather faster than consumption, with investment in housing and services particularly strong.

Our rate of economic growth last year was the highest in the European Community. For much of 1983 our export performance was affected by weak demand in many of our overseas markets, while imports rose slightly faster than home demand. But by the end of last year world trade was clearly moving ahead again, and in the three months to January manufacturing exports increased very substantially. The balance of payments on current account last year is estimated to have been in surplus by about £2 billion.

Our critics have been confounded by this combination of economic recovery and low inflation. Even the pessimists have been forced to acknowledge the durability of the recovery. It is set to continue throughout this year at an annual rate of 3 per cent. Inflation is expected to remain low, edging back down to 4½ per cent. by the end of this year. With rising incomes and low inflation, consumption will continue to grow. And, encouraged by improved profitability and better long-term growth prospects, investment is expected to rise by a good 6 per cent. this year.

Looking abroad, too, economic prospects are more favourable than they have been for some time. Output in the United States should continue to grow strongly this year, and recovery is spreading to the rest of the world.

Of course, there are inevitable risks and uncertainties. The size and continued growth of the United States budget deficit is a cause of widespread concern and keeps interest rates high, exacerbating the problems of the debtor countries. And the need to finance the United States deficit

by inflows of foreign capital has kept the dollar artificially high and led to a massive and growing trade deficit, greatly increasing the pressures for protectionism within the United States.

A second potential risk is disruption in the oil market. The United Kingdom and, indeed, the whole world economy inevitably remain vulnerable to any major disturbances in this market.

But despite these risks there is a growing sense throughout the industrialised world that the recovery this time is one which can be sustained. The essential requirement is the continued pursuit of prudent monetary and fiscal policies.

THE MEDIUM-TERM FINANCIAL STRATEGY

For the United Kingdom, the medium-term financial strategy has been the cornerstone of such policies. It will continue to play that role—to provide a framework and discipline for Government and to set out clearly, to industry and the financial markets, the guidelines of policy. Too often in the past Governments have abandoned financial discipline whenever the going got rough, and staggered from one short-term policy expedient to another. The temptation to accommodate inflationary pressure proved irresistible, and the nation's longer-term economic performance was progressively undermined.

The medium-term financial strategy was designed to remedy this, by imposing a disciplined financial framework which would also ensure consistency between monetary and fiscal policies, and a proper balance in the economy. It is so designed to ensure that the more inflation and inflationary expectations come down, the more room is available for output and employment to grow.

People now know that the Government intend to stick to their medium-term objectives. They understand that the faster inflation comes down, the faster output and employment are likely to recover. The increasing degree of realism and flexibility in the economy owes much to the pursuit of firm and consistent policies within the MTFS framework.

Originally the MTFS covered four years. In this first Budget of a new Parliament it is appropriate to carry it forward for five years. So the MTFS published today in the Financial Statement and Budget Report—the Red Book—shows a continuing downward path for the monetary target ranges over the next five years and a path for public borrowing consistent with that reduction. It takes full account of important influences such as the pattern of North sea oil revenues and the level of asset sales arising from the privatisation programme.

For the two final years of the new MTFS, which lie beyond the period covered in last year's public expenditure survey and last month's White Paper, the Government have not yet made firm plans for public spending. But the MTFS assumption—and at present it is no more than an assumption—is that the level of public spending in 1987–88 and 1988–89 will be the same in real terms as that currently planned for 1986–87.

The precise figures set out in the MTFS are not of course a rigid framework, lacking all flexibility. As in the past, there may need to be adjustments to take account of changing circumstances. But no changes will be made that might jeopardise the consistent pursuit of the Government's objectives.

MONETARY POLICY

Monetary policy will continue to play a central role. Further reductions in monetary growth are needed to achieve still lower inflation.

Over the 12 months to mid-February the growth of sterling M3 has been well within the 7 to 11 per cent. target range, with M1 at the top of the range and PSL2 a little above it. While in the early months of the target period most measures of money showed signs of accelerating, since the summer growth in all the target aggregates has been comfortably within the range. And nominal interest rates have continued to decline in line with falling inflation.

Other evidence confirms that monetary conditions are satisfactory. The effective exchange rate has remained fairly stable, despite the international uncertainties which I have described.

If monetary policy is to stay on track, its practical implementation must adapt to changes in the financial system and in the significance of different measures of money. There is of course nothing new in this. Over the years we have more than once altered the target ranges and aggregates to take account of such changes. But the thrust of the strategy has been maintained.

One important development has been the decision to give a more explicit role to the narrow measures of money. Sterling M3 and the other broad aggregates give a good indication of the growth of liquidity. But a large proportion of this money is in reality a form of savings, invested for the interest it can earn. In defining policy, it is therefore helpful also to make specific reference to measures of money which relate more narrowly to balances held for current spending.

It was for this reason that M1 was introduced as a target aggregate, but it has not proved entirely satisfactory for that purpose. With the rapid growth of interest-bearing sight deposits, M1 has become an increasingly poor measure of money held to finance current spending. The signs are that this will continue.

Other measures of narrow money have not been distorted to the same extent. In particular, MO, which consists mainly of currency, is likely to be a better indicator of financial conditions than Ml. There is also the new aggregate M2, which was specifically devised to provide a comprehensive measure of transactions balances. This may also be a useful guide but, being new, still needs to be interpreted with particular care.

In the past two years, it has been possible to set a single target range for both broad and narrow measures of money. But this will not normally be the case; for narrow monetary aggregates tend in the long run to grow more slowly than broader measures. Thus, this year's Red Book sets out two separate—though overlapping—ranges.

The target range for broad money will continue to apply to sterling M3 and for the coming year will be set at 6 to 10 per cent., as indicated in last year's MTFS. The target range for narrow money will apply to MO and for next year will be set at 4 to 8 per cent. [Interruption.] Opposition Members ought to sit quiet. They have a lot to learn.

To avoid any possible misunderstanding, let me stress that the use of MO as a target aggregate will not involve any change in methods of monetary control.

The two target aggregates will have equal importance in the conduct of policy. And the authorities will continue to take into account other measures of money, especially

M2 and PSL2, which include building society liabilities, as well as wider evidence of financial conditions, including the exchange rate. As in the past, monetary conditions will be kept under control by an appropriate combination of funding and operations in the money market.

So far as funding is concerned, the public sector's borrowing requirement, as I shall shortly explain, will be significantly lower in the coming year. In financing it, the role of national savings will remain important. This year's national savings target of £3 billion is likely to be achieved: the target for the coming year will again be £3 billion.

Precise monetary targets for the later years will be decided nearer the time. But, to give a broad indication of the objectives of monetary policy, the new MTFS, like previous versions, shows monetary ranges for a number of years ahead. These ranges are consistent with a continuing downward trend in inflation: they demonstrate the Government's intention to make further progress towards stable prices.

PUBLIC SECTOR BORROWING

I turn now to public borrowing. Just as the classical formula for financial discipline—the gold standard and the balanced budget—had both a monetary and a fiscal component, so, too, does the medium-term financial strategy.

The MTFS has always envisaged that the public sector borrowing requirement would fall as a percentage of gross domestic product over the medium term. By 1981–82 we had brought it down to 3·5 per cent. of GDP.

Since then, however, there has been little further fall. The latest estimate of the PSBR for the current year, 1983–84, remains what it was in November—around £10 billion, equivalent to 3·25 per cent. of GDP. This is significantly above what was intended at the time of last year's Budget and would have been higher still had it not been for the July measures.

We now need a further substantial reduction in borrowing in order to help bring interest rates down further as monetary growth slows down. Sterling interest rates are, of course, also influenced by dollar interest rates; but that makes it all the more important to curb domestic pressures. In contrast to virtually the whole of the post-war period, United Kingdom three-month and long-term rates are now lower than American rates. As long as American rates remain near their current level, it is highly desirable that this advantage be maintained.

The higher level of asset sales we are planning as the privatisation programme gathers pace is a further reason for reducing the PSBR significantly in the coming year. Asset sales reduce the Government's need to borrow. But their effect on interest rates may be less than the effect of most other reductions in Government spending programmes.

Last year's MTFS showed an illustrative PSBR for 1984–85 of 2·5 per cent. of GDP, equivalent to around £8 billion. But I believe that it is possible, and indeed prudent, to aim for a somewhat lower figure, I am therefore providing for a PSBR next year of 2·25 per cent. of GDP, or £7·25 billion.

The House will recall that in November I warned that on conventional assumptions, including the 1983 Red Book's PSBR figure of £8 billion for next year, I might


have to increase taxes slightly in the Budget. I am glad to report that the latest, and more buoyant, forecasts of tax revenue in the coming year have improved the picture. A PSBR of £7·25 billion will require no overall net increase in taxation.
Moreover, while the measures I shall shortly announce will, after indexation, be broadly neutral in their effects on revenue in 1984–85, they will reduce taxation in 1985–86 by well over £1·75 billion. And the MTFS published today shows that there should be room for further tax cuts not only in 1985–86 but throughout the remainder of this Parliament, provided that we stick firmly to our published plans for public expenditure to 1986–87 and maintain an equally firm control of public spending thereafter.

PUBLIC EXPENDITURE

The public expenditure White Paper setting out our spending plans for the next three years was approved by the House last week. Today I want to consider the important issue of Government spending in a rather wider perspective.

For far too long, public spending has grown faster than the economy as a whole. As a result, the tax burden has steadily increased and income tax has extended steadily lower down the income scale.

We have seen a massive enlargement in the role of the state, at the expense of the individual, and a corresponding increase in the dead weight of taxation holding back our economic progress as a nation.

This process has to stop. But it has arisen because much public spending is directed to eminently desirable ends. This raises difficult issues which deserve the widest possible consideration and debate.

The Government are therefore publishing today, in addition to the customary Budget documents, a Green Paper on the prospects for public spending and taxation over the next 10 years. It examines past trends, discusses the pressures for still higher spending, and examines the rewards for the individual and the benefits for the economy if these pressures can be contained.

The Green Paper concludes that, without firm control over public spending, there can be no prospect of bringing the burden of tax back to more reasonable levels. On the assumptions made in the Green Paper, the burden of taxation will be reduced to the levels of the early 1970s only if public expenditure is kept broadly stable in real terms over the next 10 years.

The Government believe that the issues discussed in the Green Paper merit the attention of the House and the country.

In contrast to previous years, I have no package of public expenditure measures to announce in this Budget. The White Paper plans stand.

I can, however, make one announcement, which I think the House will welcome. Within the published plans the Government have been able to provide the National Heritage Memorial Fund with additional resources which will enable it, among other things, to secure the future of Calke abbey. My right hon. Friend the Secretary of State for the Environment will be announcing the details later today.

The House will recall that proposals for the new rates of social security benefit to come into force in November are not now made at the time of the Budget. Following last

year's legislation to return to the historic method of uprating, price protection is measured by reference to the retail price index for May. My right hon. Friend the Secretary of State for Social Services will be announcing the new rates of social security benefits, including child benefit, when the May RPI is known.

Before leaving Government spending, I should add a word on public sector manpower. At the beginning of the last Parliament, the Government set themselves the target of reducing the size of the Civil Service from 732,000 in April 1979 to 630,000 by April of this year. That target will be achieved. We have now set ourselves the further target of 593,000 by April 1988. I am confident that a smaller Civil Service will continue to improve its efficiency. The tax changes that I shall be announcing today will reduce manpower requirements by at least 1,000 in my own Departments, which will help towards meeting the 1988 target.

TAX REFORM

I indicated at the outset that this will be a radical, tax-reforming Budget. It will also significantly reduce the overall burden of tax over the next two years taken together. And I hope to have scope for further reductions in future Budgets.

My proposals for reform are guided by two basic principles: first, the need to make changes that will improve our economic performance over the longer term; second, the desire to make life a little simpler for the taxpayer.

But I am well aware that the tax reformer's path is a stony one. Any change in the system is bound, at least in the short term, to bring benefits to some and disadvantages to others. And the disapproval of the latter group tends to be rather more audible than the murmurings of satisfaction from the former.

Some commentators have suggested that our entire income-based tax system should be replaced with an expenditure-based system. Even if a root-and-branch change of this kind were desirable, it would, I believe, be wholly impractical and unrealistic.

But I do not believe we can afford to opt for the quiet life and do nothing. So I have chosen the middle way: to introduce reforms, some of them far-reaching, within the framework of our existing income-based system. I shall also be proposing transitional arrangements where I believe it fair and appropriate to do so.

The changes I shall be proposing today fall into three broad categories. These are the taxation of savings and investment, business taxation, and the taxation of personal income and spending.

SAVINGS AND INVESTMENT

First, the taxation of savings and investment. The proposals I am about to make should improve the direction and quality of both. And they will contribute further to the creation of a property-owning and share-owning democracy, in which more decisions are made by individuals rather than by institutions.

I start with stamp duty. This was doubled from its longstanding 1 per cent. by the post-war Labour Government in 1947, reduced by the Conservative Government in 1963, and once again doubled to 2 per cent. by Labour in the first Budget presented by the right hon. Member for Leeds, East (Mr. Healey) in 1974. I am sorry that he is not


in his place today. At its present level it is an impediment to mobility and incompatible with the forces of competition now at work in the City, following the withdrawal of the Stock Exchange case from the Restrictive Practices Court.

I therefore propose to halve the rate of stamp duty to 1 per cent. The new rate will apply straight away to Stock Exchange deals. It will also apply from today to other transactions where documents are stamped on or after 20 March.

For the home buyer, the new flat rate 1 per cent. stamp duty will start at £30,000. Below this level no duty will be payable. As a result of this £5,000 increase in the threshold, 90 per cent. of first-time home buyers will not have to pay stamp duty at all.

Reducing the rate of duty on share transfers will remove an important disincentive to investment in equities and increase the international competitiveness of our stock market. It should also help British companies to raise equity finance.

In addition, I have four proposals to encourage the issue of corporate bonds. I shall go ahead with the new arrangements for deep discount stock and the reliefs for companies issuing Eurobonds, and for convertible loan stock, which were announced but not enacted last year. And I propose to exempt from capital gains tax most corporate fixed interest securities provided they are held for more than a year. As such securities are already exempt from stamp duty, this means that the tax concessions for private sector borrowing in the corporate bond market will now be virtually the same as for Government borrowing in the gilt-edged market.

The reductions in stamp duty will cost £450 million in 1984–85, of which £160 million is the cost of the relief on share transfers and £290 million the cost of the relief on transfers of houses and other buildings and land.

Next, life assurance. The main effect of life assurance premium relief today is unduly to favour institutional rather than direct investment. It has also spawned a multiplicity of well-advertised tax management schemes and no fewer than 50 pages of legislation attempting to deal with its abuse. I therefore propose to withdraw the relief on all new contracts made after today. I stress that this change will apply only to new, or newly enhanced, policies, taken out after today. Existing policies will not be affected at all. The change is estimated to yield about £90 million in 1984–85.

I am also proposing to curtail the special—but unfortunately widely abused—privileges for what are known as "tax exempt" friendly societies, and bring them into line with the normal rules for friendly societies doing "mixed" business. However, the limits within which in future all friendly societies will be able to write assurance on a tax exempt basis will be increased from £500 to £750.

I have also reviewed the tax treatment of direct personal investment. The investment income surcharge is an unfair and anomalous tax on savings and on the rewards of successful enterprise. It hits the small business man who reaches retirement without the cushion of a company pension scheme and impedes the creation of farm tenancies. In the vast majority of cases it is a tax on savings made out of hard-earned and fully-taxed income. More

than half of those who pay the investment income surcharge are over 65, and of these half would otherwise by liable to tax at only the basic rate.

I have therefore decided that the investment income surcharge should be abolished. The cost in 1984–85 will by some £25 million, building up to around £350 million in a full year.

Finally, I propose to draw more closely together the tax treatment of depositors in banks and building societies. These institutions compete in the same market for personal deposits. I believe that they should be able to do so on more equal terms as far as tax is concerned. One source of unequal treatment has already been removed, with the recent change made on legal advice in the tax treatment of building societies' profits from gilt-edged securities. They are now treated in the same way as those of the banks have always been.

But the major source of unequal treatment, against which the banks in particular have frquently complained, is the special arrangement for interest paid by building societies. The societies pay tax at a special rate—the "composite rate"—on the interest paid to the depositor, who receives credit for income tax at the full basic rate.

This system, which has worked well for the past 90 years, has both an advantage and a disadvantage. The disadvantage is that a minority of depositors, who are below the income tax threshold, still pay tax at the composite rate. It has not, however, stopped many of them from using building societies because of the competitive rates these have offered. The advantage of the scheme is its extreme simplicity, particularly for the taxpayer; most taxpayers are spared the bother of paying tax on interest through PAYE or individual assessment, while the Revenue is spared the need to recruit up to 2,000 extra staff to collect the tax due on interest paid without deduction.

In common with my predecessors of all parties over the past 90 years, I am satisfied that the advantage of the composite rate arrangement outweighs the disadvantage. It follows that equal treatment of building societies and banks should be achieved, not by removing the composite rate from the societies but by extending it to the banks and other licensed deposit takers.

Non-taxpayers will still continue to be able to receive interest gross, should they wish to do so, by putting their money into appropriate national savings facilities. But the purpose of the move is not, of course, to attract savings into Government hands: as I have already announced, next year's target for national savings will be the same as this year's and last year's; and the total Government appetite for savings, which is measured by the size of the public sector borrowing requirement, is being significantly reduced.

The true purpose of the move is simple: fairer competition and simplicity itself. The great majority of individual bank customers will, when it comes to tax, be able to forget about bank interest altogether, for all the tax due on it will already have been paid. And it will be easier for people to compare the terms offered for their savings by banks and building societies.

The purpose of the change is not to raise additional revenue. The composite rate arrangement is designed to collect no more tax than would be due at the basic rate from all depositors under existing arrangements.

However, the Inland Revenue will be able to make staff savings of up to 1,000 civil servants. Moreover, this figure


takes no account of the substantial numbers of additional Inland Revenue staff who would have been required to operate the present system as the trend towards the payment of interest on current accounts develops.

Accordingly, I propose to extend the composite rate arrangements to interest received by United Kingdom-resident individuals from banks and other licensed deposit takers with effect from 1985–86. The composite rate will not apply either to non-residents or to the corporate sector. Arrangements will also be made to exclude from the scheme certificates of deposit and time deposits of £50,000 or more.

Taken together, the major proposals I have just announced on stamp duty, life assurance premium relief, the investment income surcharge, and the composite rate, coupled with other minor proposals, will provide a simpler and more straightforward tax system for savings and investment. They will remove biases which have discouraged the individual saver from investing directly in industry. They will reinforce the Government's policy of encouraging competition in the financial sector, as in the economy as a whole. And they are part of a package of measures designed to enable interest rates to fall and reduce the cost of borrowing.

BUSINESS TAXATION

I now turn to business taxation. Here the Government have two responsibilities towards British business and industry. The first is to ensure that they do not have to bear an excessive burden of taxation. The second is to ensure that, given a particular burden, it is structured in the way that does least damage to the nation's economic performance.

The measures that I am announcing today will, taking the next two years together, result in a substantial reduction in the burden of taxation on British business. And, in addition, I shall be proposing a far-reaching reform of company taxation.

Responses to the corporation tax Green Paper in 1982 showed a strong general desire to retain the imputation system. I accept that. But other changes are needed.

The current rates of corporation tax are far too high, penalising profit and success, and blunting the cutting edge of enterprise. They are the product of too many special reliefs, indiscriminately applied and of diminishing relevance to the conditions of today. Some of these reliefs reflect economic priorities or circumstances which have long vanished, and now serve only to distort both investment decisions and choices about finance. Others were introduced to meet short-term pressures, notably the upward surge of inflation.

With inflation down to today's low levels, this is clearly the time to take a fresh look. And with unemployment as high as it is today, it is particularly difficult to justify a tax system which encourages low-yielding or even loss-making investment at the expense of jobs.

My purpose, therefore, is to phase out some unnecessary reliefs in order to bring about, over time, a markedly lower rate of tax on company profits.

First, capital allowances. Over virtually the whole of the post-war period there have been incentives for investment in both plant and machinery and industrial, although not commercial, buildings. But there is little evidence that these incentives have strengthened the economy or improved the quality of investment. Indeed, quite the contrary: the evidence suggests that businesses

have invested substantially in assets yielding a lower rate of return than the investments made by our principal competitors. Too much of British investment has been made because the tax allowances make it look profitable rather than because it would be truly productive. We need investment decisions based on future market assessments, not future tax assessments.

I propose to restructure the capital allowances in three annual stages. In the case of plant and machinery, and assets whose allowances are linked with them, the first year allowance will be reduced from 100 per cent. to 75 per cent. for all such expenditure incurred after today, and to 50 per cent. for expenditure incurred after 31 March next year. After 31 March 1986 there will be no first year allowances, and all expenditure on plant and machinery will qualify for annual allowances on a 25 per cent. reducing balance basis.

In addition, from next year annual allowances will be given as soon as the expenditure is incurred and not, as they are today, when the asset comes into use. This will bring forward the entitlement to annual allowances for those assets, such as ships and oil rigs, for which some payment is normally made well before they are brought into use.

For industrial buildings, I propose that the initial allowance should fall from 75 per cent. to 50 per cent. from tonight, and be further reduced to 25 per cent. from 31 March next year. After 31 March 1986 the initial allowance will be abolished, and expenditure will be written off on an annual 4 per cent. straight line basis.

When these changes have all taken place, tax allowances for both plant and machinery and industrial buildings will still on average be rather more generous than would be provided by a strict system of commercial depreciation.

The changes in the rates of allowances will not apply to payments under binding contracts entered into before midnight tonight, provided that the expenditure is incurred within the next three years.

There will be transitional tax arrangements for certain investment projects in the development areas and special development areas. When a project in those areas has had an offer of Industry Act selective financial assistance and also attracts regional development grants, the existing capital allowances will continue to apply to the expenditure to which the selective assistance is related. These arrangements will cover projects for which offers have already been made between 1 April 1980 and today. Similar arrangements for regional development grants were, of course, announced by my right hon. Friend the Secretary of State for Trade and Industry in his White Paper last December.

Over the same period to 31 March 1986 most other capital allowances will be brought into line with the main changes which I have announced. The Inland Revenue will be issuing a press notice tonight giving full details of these proposals.

Next, stock relief. As the House will recall, this was introduced by the last Labour Government as a form of emergency help to businesses facing the ravages of high inflation. Those days are past; and the relief is no longer necessary. Company liquidity has improved and, above all, inflation has fallen sharply. Accordingly, I propose not to allow stock relief for increases in prices after this month.

The changes that I have just announced, in capital allowances and stock relief, enable me to embark on a major programme of progressive reductions in the main rate of corporation tax. For profits earned in the year just ending, on which tax is generally payable in 1984–85, the rate will be cut from 52 per cent. to 50 per cent. For profits earned in 1984–85 the rate will be further cut to 45 per cent. Looking further ahead, to profits earned in 1985–86, the rate will go down to 40 per cent.; and for profits earned in 1986–87 the main rate of corporation tax will be 35 per cent.—no fewer than 17 percentage points below the current rate.

All these rates for the years ahead will be included in this year's Finance Bill; and when these changes are complete our rates of capital allowances in this country for the generality of plant and machinery will be comparable with those in most other countries, while the rate of tax on profits will be significantly lower.

The substantial reduction in the rate of corporation tax will bring a further benefit. Our imputation system allows a company to offset in full all interest paid. But only a partial offset for dividends is allowed. Companies thus have a clear incentive to finance themselves through borrowing and in particular bank borrowing rather than by raising equity capital. The closer the corporation tax rate comes to the basic rate of income tax, the smaller this undesirable distortion becomes.

Of course, the majority of companies are not liable to pay the main rate of corporation tax at all. For them it is the small companies' rate, at present 38 per cent., which applies. I propose to reduce this rate forthwith to 30 per cent. for profits earned in 1983–84 and thereafter. A tax regime far small companies which is already generous by international standards will thus become markedly more generous.

The corporation tax measures I have just announced will cost £280 million in 1984–85. In 1985–86 the cost will be £450 million—made up of £1,100 million by way of reductions in the rates, only partially offset by a £650 million reduction in the value of the reliefs. During the transitional period as a whole, these measures should have a broadly neutral effect on the financial position of companies. But when the changes have fully worked through companies will enjoy very substantial reductions in the tax that they pay.

Business and industry can go ahead confidently on the basis of the corporation tax rates I have announced today, which set the framework of company taxation for the rest of this Parliament.

Over the next two years, these changes will cause some investment to be brought forward, to take advantage of high first-year capital allowances—a prospect made all the more alluring for business since the profits earned will be taxed at the new, lower rates. But the more important and lasting effect will be to encourage the search for investment projects with a genuinely worthwhile return and to discourage uneconomic investment.

It is doubtful whether it has ever been really sensible to subsidise capital investment irrespective of the true rate of return. But certainly, with over 3 million unemployed, it cannot make sense to subsidise capital so heavily at the expense of labour.

These changes hold out an exciting opportunity for British industry as a whole: an opportunity further to

improve its profitability, and to expand, building on the recovery that is already well under way. Higher profits after tax will encourage and reward enterprise, stimulate start innovation in all its forms, and create more jobs.

I now turn to some more detailed measures affecting business.

The business expansion scheme, introduced last year as a successor to the business start-up scheme, has been widely welcomed as a highly imaginative scheme for encouraging individuals to invest in small companies. It is already proving a considerable success. It now needs time to settle down, and I have only one change to propose this year.

The scheme was designed to offer generous incentives for investment in new or expanding companies in high-risk areas. The ownership of farmland cannot be said to fall within this category, and I therefore propose that from tomorrow farming should cease to be rated as a qualifying trade under the scheme.

Next, in keeping with what I have said about removing complexity and distortions, I propose to abolish two reliefs in the personal tax field which were introduced at a time when this country suffered from excessively high rates of income tax. As we have reduced those rates, the reliefs are no longer justified.

The first is the 50 per cent. tax relief—falling after nine years to 25 per cent.—applied to the emoluments of foreign-domiciled employees working here for foreign employers. These employees are often paying much less tax here than they would either in their own country or in most other European countries. At present income tax rates, the need for this relief has clearly disappeared. Moreover, it is open to widespread abuses. It is, for example, possible for someone whose parents came here from abroad, and who has himself lived here all his life, to enjoy this relief, if he works for a foreign company. That cannot be right.

I therefore propose to withdraw the relief for all new cases from today. For existing beneficiaries, the 25 per cent. relief will cease on 6 April, and the 50 per cent. relief will be phased out over the next five years.

I also propose to withdraw the foreign earnings relief for United Kingdom residents who work at least 30 days abroad in a tax year. This relief, too, harks back to the days of penally high income tax rates. It, too, has been exploited, in particular by those who prolong their overseas visits purely in order to gain a tax advantage. I propose to withdraw the matching relief for the self-employed who spend 30 days abroad, and for those resident in the United Kingdom who have separate employments or separate trades carried on wholly abroad. The relief will be halved to 12½ per cent. in 1984–85 and removed entirely from 6 April 1985.

However, I am not making any change to the 100 per cent. deduction given for absences abroad of 365 days or more. In addition, I have authorised consultations by the Inland Revenue about a possible relaxation in the rules governing the taxation of expenses reimbursed to employees for travel overseas.

The abolition of these reliefs will eventually yield revenue savings of over £150 million and represents another useful step in the removal of complexity and distortions in the tax system.

I need to set the car benefit scales for 1985–86 for those provided with the use of a car by their employer. Despite the increases over recent years, the levels still fall short of


any realistic measure of the true benefit. I am proposing an increase of 10 per cent. in both the car and car fuel scales with effect from April 1985.

Unnecessarily high rates of tax discourage enterprise and risk taking. This is true of the capital taxes, just as it is of the corporation and income taxes. It is a matter of particular concern to those involved in running unquoted family businesses. The highest rates of capital transfer tax are far too high and badly out of line with comparable rates abroad. I propose therefore, in addition to statutory indexation, to reduce the highest rate of capital transfer tax from 75 per cent. to 60 per cent. For lifetime gifts I propose to simplify the scale so that the rate is always one half of that on death.

For capital gains tax I will, as promised, bring forward in the Finance Bill proposals to double the limit for retirement relief to a figure of £100,000, backdated to April 1983. A consultative document on other possible changes in this relief is being issued next week. I am proposing no other changes this year in capital gains tax beyond the statutory indexation of the exempt amount from £5,300 to £5,600. However, the tax continues to attract criticism—not least for its complexity—and that is a matter to which I hope to return next year.

We have done much to improve the development land tax. Early in the last Parliament, my predecessor increased the threshold from £10,000 to £50,000. I now propose a further increase to £75,000, which will reduce the number of cases liable to the tax by more than one third.

Next, share options. The measures introduced in the last Parliament to improve employee involvement through profit-sharing and savings-related share options schemes have been a notable success. The number of these schemes open to all employees has increased from about 30 in 1979 to over 670 now, benefiting some half a million employees. To maintain and build on this progress I propose to increase the monthly limit on contributions to savings-related share option schemes from £50 to £100. I have also authorised the Inland Revenue to double the tax-free limits under the concession on long-service awards, and to include within these limits the gift of shares in the employee's company.

But, beyond this, I am convinced that we need to do more to attract top calibre company management and to increase the incentives and motivation of existing executives and key personnel by linking their rewards to performance. I propose therefore that, subject to certain necessary limits and conditions, share options generally be taken out of income tax altogether, leaving any gain to be charged to capital gains tax on ultimate disposal of the shares. The new rules will apply to options meeting the necessary conditions which are granted from 6 April.

I am sure that all these changes will be welcomed as measures to encourage the commitment of employees to the success of their companies and to improve the performance, competitiveness and profitability of British industry.

As the House knows, the Government are deeply concerned at the threat which the spread of unitary taxation in certain United States states has posed to the United States subsidiaries of British firms. With our European partners we are monitoring the situation closely, and await with keen interest the imminent report of United States Treasury Secretary Regan's working group. It is essential that a satisfactory solution is found and speedily implemented.

United States firms operating in this country are not, of course, taxed on a unitary basis.

I now turn to oil taxation. Last year's North sea tax changes were well received, and there has been a substantial increase in the number of development projects coming forward and a new surge in exploration. Work on no fewer than 128 offshore exploration and appraisal wells started last year—an all-time record.

The Government are already committed to a study of the economics of investment in incremental development in existing fields. This is of increasing importance, and in consultation with my right hon. Friend the Secretary of State for Energy I therefore propose to review this area with the industry, and to legislate as appropriate next year to improve the position. To prevent projects being deferred pending this review, any changes will apply to all projects which receive development consent after today.

Meanwhile, I am taking two measures to prevent an unjustified loss of tax from the North sea. First, in addition to the PRT measures on farm-outs which I announced last September, I am limiting the potential corporation tax cost of such deals. Second, I propose to repeal the provision which allows advance corporation tax to be repaid where corporation tax is reduced by PRT. I have also reviewed the case for extending last year's future field concessions to the southern basin, but have concluded that an additional incentive here is not needed.

I have just two further changes affecting business to propose, both of which will come into force on 1 October.

Ever since VAT was introduced in this country, we have treated imports differently from the way our main European Community competitors treat them. While they require VAT on imported goods to be paid in the same way as customs duties, we do not. Under our system an importer does not have to account for VAT on his imports until he makes his normal VAT return, on average some 11 weeks later. During this time the importer enjoys free credit at the taxpayer's expense. But when one British business man buys from another, he gets no such help from the taxpayer: he pays his VAT when he pays his supplier.

The European Commission has for some years now been seeking, with our full support, to get a system like ours adopted throughout the Community. But the plain fact is that in all that time the Commission has made no progress whatever.

I must tell the House that I am not prepared to put British industry at a competitive disadvantage in the home market any longer. Should our European partners at any time undergo a Damascene conversion and agree that the Commission's proposal should be accepted after all, then of course we would revert to the present system. But in the meantime I propose to move to the system used by our European competitors. We shall provide the same facilities for payment of VAT on imports as apply to customs duties. That means that most importers will be able to defer payment of VAT by, on average, one month from the date of importation. But that is all.

As I have said, this change will apply from 1 October. By bringing forward VAT receipts, it will bring in an extra £1·2 billion in 1984–85, some of which will be borne by foreign producers and manufacturers. There will of course be no increased revenue in subsequent years.

The second change I propose to make on 1 October concerns the national insurance surcharge. This tax on jobs was introduced by the Labour Government in 1977 at the rate of 2 per cent., and further increased by the right hon.

Member for Leeds, East in 1978 to 3½ per cent. During the last Parliament, this Government reduced it to 1 per cent., and we are pledged to abolish it during the lifetime of this Parliament.

Given the impact that this tax has, not only on industrial costs but also—at a time of high unemployment—on jobs, I have decided to take the opportunity of this my first Budget to fulfil that pledge. Abolition of the national insurance surcharge from October will reduce private sector employers' costs by almost £350 million in 1984–85, and over £850 million in a full year. It will thus be of continuing help to British industry. As before, the benefit will be confined to the private sector.

The House will, I am sure, agree that a Budget which substantially reduces the Government's demands on financial markets, which abolishes the national insurance surcharge and which cuts the rates and simplifies the structure of corporation tax is a Budget for jobs and for enterprise. It offers British industry an opportunity which I am confident it will seize.

PERSONAL TAXATION: TAXES ON SPENDING

Having announced major reforms of both the taxation of savings and investment and the taxation of business, I turn now to third and final area in which I propose to make progress on tax reform. This is the taxation of personal income and spending.

The broad principle was clearly set out in the manifesto on which we were first elected in 1979. This emphasised the need for a switch from taxes on earnings to taxes on spending. My predecessor made an important move in this direction in his first Budget, and the time has come to make a further move today. To reduce direct taxation by this means is important in two ways. It improves incentives and makes it more worthwhile to work, and it increases the freedom of choice of the individual.

Having regard to the representations I have received on health grounds, I therefore propose an increase in the tobacco duty which, including VAT, will put lop on the price of a packet of cigarettes, with corresponding increases for hand-rolling tobacco and cigars. This will do no more than restore the tax on tobacco to its 1965 level in real terms. These changes will take effect from midnight on Thursday. I do not, however, propose any increase in the duty on pipe tobacco.

I propose to raise most of the other excise duties broadly in line with inflation, so as to maintain their real value: not to do so would run counter to the philosophy I outlined a moment ago. But with inflation as low at it now is, the necessary increases are on the whole mercifully modest.

I propose to increase the duties on petrol and derv by amounts which, including VAT, will raise the price at the pumps by 4½p and 3½p a gallon respectively. This does no more than keep pace with inflation. The changes will take effect for oil delivered from refineries and warehouses from 6 o'clock this evening. I do not propose to increase the duty on heavy fuel oil, which is of particular importance to industrial costs.

There is one excise duty which I propose to do away with altogether. Many of those who find it hardest to make ends meet, including in particular many pensioners, use paraffin stoves to heat their homes. It is with them in mind

that I propose to abolish the duty on kerosene from 6 o'clock tonight. I am sure that this will be welcomed on all sides of the House.

The various rates of vehicle excise duty will, once again, go up roughly in line with prices. Thus, the duty for cars and light vans will be increased by £5, from £85 to £90 a year. However, in the light of the reassessment by my right hon. Friend the Secretary of State for Transport of the wear and tear that various types of vehicle cause to the roads, there will be reductions in duty for the lightest lorries, offset by higher increases for some heavier lorries. All these changes in vehicle excise duty will take effect from tomorrow.

However, I propose to exempt from vehicle excise duty all recipients of the war pensioners' mobility supplement. In addition, the existing VAT relief for motor vehicles designed or adapted for use by the handicapped will be extended, and matched by a new car tax relief. The effect will be that neither VAT nor car tax will apply to family cars designed for disabled people or substantially adapted for their use.

I now come to the most difficult decision I have had to take in the excise duty field. As the House will be aware, the rules of the European Community, so far as alcoholic drinks are concerned, are designed to prevent a member state from protecting its own domestic product by imposing a significantly higher duty on competing imports. In pursuit of this, the Commission has taken a number of countries to the European Court of Justice.

In our case, the Commission contended that we were protecting beer by under-taxing it in relation to wine. We fought the case, but we lost; and I am now implementing the judgment handed down by the court last year. Accordingly, I propose to increase the duty on beer by the minimum amount needed to comply with the judgment and maintain revenue: 2p on a typical pint of beer, including VAT. At the same time, the duty on table wine will be reduced by the equivalent of about 18p a bottle, again including VAT.

We have thus complied with the court's judgment, and I am happy to be able to tell the House that the Italian Government have, after discussions, given us an undertaking that they will comply with earlier court rulings on discrimination against Scotch whisky.

As for the rest of the alcoholic drinks, cider, which increasingly competes with beer but attracts a lower duty, will go up by 3p a pint. The duties on made wine will be aligned with those on other wine, and I propose to increase the duty on sparkling wine, fortified wine and spirits by about 10p a bottle, including VAT. All these changes will take effect from midnight tonight.

These changes in excise duties will, all told, bring in some £840 million in 1984–85, some £200 million more than is required to keep pace with inflation. The addition is, of course, due to the increase in tobacco duty.

The remainder of the extra revenue I need to enable me to make a substantial switch this year from taxes on earnings to taxes on spending must come from VAT. I propose no change in the rate of VAT. Instead, I intend to broaden the base of the tax by extending the 15 per cent. rate to two areas of expenditure that have hitherto been zero rated.

First, alterations to buildings. At present repairs and maintenance are taxed, but alterations are not. The borderline between these two categories is the most


confused in the whole field of VAT. I propose to end this confusion and illogicality by bringing all alterations into tax.

I recognise that this will be unwelcome news for the construction industry, but construction will of course benefit very greatly from the reduction in the rate of stamp duty which I have already announced: £290 million of the cost of that reduction in 1984–85 relates to transfers of land and buildings, and of that £290 million over 90 per cent. relates to buildings and building land. Nevertheless, to allow a reasonable time for existing commitments to be completed or adjusted, the VAT change will be deferred until 1 June.

Secondly, food. Most food is zero rated, but food served in restaurants is taxed, together with a miscellaneous range of items including ice cream, confectionery, soft drinks and crisps, which were brought into tax by the right hon. Member for Leeds, East. Takeaway food clearly competes with other forms of catering, and I therefore intend to bring into tax hot take-away food and drinks, with effect from 1 May.

The total effect of the extensions of the VAT coverage which I have proposed will be to increase the yield of the tax by £375 million in 1984–85 and by £650 million in a full year.

The total impact effect on the retail price index of the VAT changes and excise duty changes taken together will be less than three quarters of 1 per cent. This has already been taken into account in the forecast which I have given to the House of a decline in inflation to 4½ per cent. by the end of the year.

The extra revenue raised in this way will enable me, within the overall framework of a neutral Budget, to lighten the burden of income tax.

PERSONAL TAXATION: INCOME TAX

Since we took office in 1979, we have cut the basic rate of income tax from 33 per cent. to 30 per cent. and sharply reduced the confiscatory higher rates inherited from the last Labour Government. We have increased the main tax allowances not simply in line with prices but by around 8 per cent. in real terms. It is a good record, but it is not enough. The burden of income tax is still too heavy.

During the lifetime of this Parliament, I intend to carry forward the progress we have already made. For the most part, this will have to wait for future Budgets, particularly since I have thought it right this year to concentrate on setting a new regime of business taxation for the lifetime of a Parliament—and beyond. But, as a result of the changes to taxes on spending which I have just announced, I can take a further step in this Budget.

I propose to make no change this year in the rates of income tax. So far as the allowances and thresholds are concerned, I must clearly increase these by the amounts set out in the statutory indexation formula, based on the 5·3 per cent. increase in the retail price index to December. The question is how much more I can do, and how to direct it.

I have decided that, this year, the right course is to use every penny I have in hand, within the framework of a revenue-neutral Budget, to lift the level of the basic tax thresholds, for the married and single alike. It makes very little sense to be collecting income tax from people who are at the same time receiving means-tested benefits. Moreover, low tax thresholds worsen the poverty and

unemployment traps, so that there is little if any financial incentive to find a better job or even any job at all. There is, alas, no quick or cheap solution to these problems. But that is all the more reason to make a further move towards solving them now.

I propose to increase the other thresholds in line with the statutory indexation requirement, but by no more. The first higher rate of 40 per cent. will apply when taxable income reaches £15,400 a year and the top rate of 60 per cent. to taxable income over £38,100. The single age allowance will rise from £2,360 to £2,490 and the married age allowance from £3,755 to £3,955.

For the basic thresholds, statutory indexation would mean putting the single and married allowances up by £100 and £150 respectively. I am glad to say that I can do considerably better than that. I propose to increase the basic thresholds by well over double what is required by indexation. The single person's allowance will be increased by £220, from £1,785 to £2,005; and the married man's allowance by £360, from £2,795 to £3,155.

This is an increase of around 12·5 per cent., or some 7 per cent. in real terms. It brings the married man's tax allowance for 1984–85 to its highest level in real terms since the war. It means that the great majority of married couples will enjoy an income tax cut of at least £2 a week, and it means that a large number of people, those with the smallest incomes of all, are taken out of income tax altogether. Some 850,000 people—over 100,000 of them widows—who would have paid tax if thresholds had not been increased will pay no tax in 1984–85. That is 400,000 more taken out of tax than if the allowances had merely been indexed.

All these changes will take effect under PAYE on the first pay day after 10 May. Their cost is considerable—some £1·8 billion in 1984–85, of which roughly half represents the cost of indexation.

This is as far as I can go on income tax this year, within a broadly revenue-neutral Budget for 1984–85. But, so long as we hold to our published planned levels of public spending, there is an excellent prospect of further cuts in income tax in next year's Budget. These would be on top of the measures I have announced in this Budget which, as I have already told the House, will reduce taxation in 1985–86 by well over £1¾ billion, with business taking the lion's share.

CONCLUSION

I have, Mr. Deputy Speaker, completed the course I charted at the outset this afternoon. I have described the recovery and how the Government plan to sustain it and assist the creation of new jobs. I have reaffirmed our commitment to further reductions in inflation, by maintaining sound money and by curbing Government borrowing. I have embarked on a radical programme of tax reform, abolishing outright two major taxes—the investment income surcharge and the national insurance surcharge—and I have been able to propose measures which will significantly reduce the burden of taxation over the next two years. I commend this Budget to the House.

Mr. Deputy Speaker: Under Standing Order No. 114, the first motion, entitled "Provisional Collection of Taxes", must be decided without debate.

PROVISIONAL COLLECTION OF TAXES

Motion made, and Question,
That pursuant to section 5 of the Provisional Collection of Taxes Act 1968 provisional statutory effect shall be given to the following motions—
(a) Spirits (Motion No. 2).
(b) Beer (Motion No. 3).
(c) Wine and made-wine (Motion No. 4).
(d) Cider (Motion No. 6).
(e) Tobacco products (Motion No. 7).
(f) Hydrocarbon oil (Motion No. 8).
(g) Vehicles excise duty (Motion No. 9).—[Mr. Lawson.]

put forthwith, pursuant to Standing Order No. 114 (Ways and Means Motions), and agreed to.

Mr. Deputy Speaker: I shall now call on the Chancellor of the Exchequer to move the motion entitled "Amendment of the Law". It is on that motion that the Budget debate will take place today and on succeeding days. The remaining motions will not be put until the end of the Budget debate next week and they will then be decided without debate.

Budget Resolutions and Economic Situation

AMENDMENT OF THE LAW

Motion made, and Question proposed,
That it is expedient to amend the law with respect to the National Debt and public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

(a) for zero-rating or exempting any supply;
(b) for refunding any amount of tax, otherwise than by a provision relating to supplies to, and importation by, a government department within the meaning of section 27 of the Value Added Tax Act 1983;
(c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
(d) for any relief other than relief applying to goods of whatever description or services of whatever description.—[Mr. Lawson.]

[Relevant documents: European Community Document No. 10156/83, Annual Economic Report 1983–84, together with the final version as adopted by the Council.]

5 pm

Mr. Neil Kinnock: The more I see of Budgets, the more I am convinced that they are ceremonial occasions.
In the weeks of nudges, winks and leaks that precede Budget dates, in the Sunday family photographs—they were rather nice this year, I thought—in the speculations on what tipple or tincture the Chancellor of the Exchequer will use in his flask, in the stroll that usually takes place before he presents his Budget, in the battered brief case, in all those collected traditions there is a certain choreography. Now, after the Chancellor has sat down, we move to the next act. Scene 1 is the departure of large numbers of hon. Members from the Chamber. Scene 2 of the traditional act—I persuade myself that it is irrelevant to the performance on the Opposition Front Bench, because it always takes place—is the response by the Leader of the Opposition.
First, I congratulate the Chancellor of the Exchequer on presenting his Budget. It is a traditional ceremony of congratulation, but I do it with more earnestness than is usual, because I think that it only took the Chancellor one hour and 20 minutes to present his Budget. If he deserves congratulations for nothing else, he deserves warm congratulations on the brevity with which he delivered his statement.
I am told that it is an ordeal to stand at the Dispatch Box and deliver a Budget speech, that it is a physical ordeal for Chancellors to be on their feet for such long periods, and I am prepared to believe it. Of course, millions of people who work an 8-hour day standing on their feet would not believe that it was such an ordeal, but I am sure we all understand that it is the apex of some strain and anticipation on the part of the Chancellor. Therefore we can accept that it is a strain. [Interruption.] Others may say, like Prospero, that the ceremony is an "unsubstantial pageant", and although it was shorter this year than previously, it was not so much—again, as Prospero said—"rounded with a sleep" as I have noticed on the Government Benches on previous occasions.
Like all previous Leaders of the Opposition, I am at the unique disadvantage in having to respond to the Budget without the benefit of the Red Book. As far as I know, no one—other than conceivably the Prime Minister, who


told us a few years ago that she was speaking off the cuff—ever sought to crave the understanding of the House on that basis, and I do not believe that anyone should. However, it is a little like reporting a rugby match that one has left at half-time. It does not often bother sports commentators that they do not see much of the match, but it bothers us.
However, we have had the advantage—or disadavantage—of seeing the play over the past five years, and we have also had the ominous warning that the policies of those five years are to be continued by the Chancellor. Indeed, that was his opening remark. The unemployment and under-employment of labour, capital and skills and other resources that we have experienced in those five years are to continue. The five years that have resulted in a loss of our world trade share are to continue. The policies that have brought five years of cuts and closures are to continue. The policies of five years of waste—£40,000 million worth of North Sea oil revenues—are to continue. The policies of five years with allowances and concessions that have most benefited the rich but no concessions to benefit the poor in real terms are to continue. During those five years we have seen the income tax burden cut by £1·2 billion and the national insurance burden increased by £3·4 billion. Those policies are to continue. [Interruption.]
On that basis, and on the generality of what we heard from the Chancellor of the Exchequer this afternoon, I have to say that this Budget does much more for the City of London than it does for the country of Britain. [Interruption.] There are features—

Mr. Deputy Speaker: Order. The Chancellor of the Exchequer was given a very fair hearing, and I think that the House should extend the same courtesy to the Leader of the Opposition.

Mr. Kinnock: I think that the disturbance is largely due, Mr. Deputy Speaker, to some of the new boys who are not used to the felicities. I shall try to avoid felicities altogether in future.
The congratulations, or at least the commendations, extend to part of what the Chancellor said. It is true that last year my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) urged on the then Chancellor a further raising of the income tax thresholds and the abolition of the national insurane surcharge. So it is natural for us to commend those steps today. However, we had hoped that in changing the income tax thresholds the Chancellor would not do it in such a way as to confer further benefits on people earning, say, more than £20,000 a year. We happen to believe that what resources are available to him should be concentrated or targeted on people of modest and low incomes—incomes of around £20,000 and less. It is sad that he has used resources to reward those who already have. There may have been a much more efficient way of using the inducements—such as they are—of lowering income tax among people whom the Prime Minister has been known to call in the past the wealth creators in our society.
There are commendable steps. The introduction of the new procedure for the collection of value added tax is to be commended. Regrettably, I cannot say the same for what I consider is a quite indefensible extension of value added tax to take-away foods. They are not in competition

with restaurant-served or cafe-served food. Indeed, the very act of taking away is generally used by people on lower incomes as a way to reduce their food bills.
Then we heard that VAT is to be charged on home extensions. It is extraordinary that the Prime Minister told us, just three or four weeks ago, that she wanted a do-it-yourself economy. Nevertheless, now the Chancellor is imposing VAT on home conversions and extensions, done either by the individual or by the construction industry. The construction industry, having lost 350,000 workers in the last four years, having lost such a lot of its trade, having lost public sector contracts and presiding over the lowest year for housing starts for many years past. cannot afford to lose any trade, including the home extension trade.
If we look further into the Chancellor's measures there are other areas worthy of considerable criticism. I am sure that my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley), who will speak tomorrow from the Opposition Front Bench, will take them up in detail, but some require immediate response.
First, I believe that the extension of the composite rate from building societies to banks will damage the interest of the small saver. It is an absolute evasion for the Chancellor to suggest that those small savers can be shoved out of the banks and into the national savings system. There is no question but that some people will be unfairly disadvantaged by that.
The abolition of the investment income surcharge is an equally partisan act, a deliberate act in favour of those who need no such further assistance. As the right hon. Gentleman knows, the threshold at which that surcharge became payable was in excess of £7,000 a year. It is extraordinary that the Chancellor is removing that surcharge of 15 per cent., while requiring that people on very low earned incomes still have to pay a 9 per cent. rate of national insurance charge. That, again, is typical of the Chancellor's distortion of values. The reduction in capital transfer tax and capital gains tax contributes nothing to the general welfare or production of our society.
One other point I wish to refer to has particularly damaging potential in a country where we must be stimulating, and trying to induce and encourage, investment in companies of all sizes as much as possible. It is folly to take the gamble of reducing capital allowances, or any of the other allowances, in order to try to induce people to increase their investment in buildings or in machinery. The Chancellor did not give an overall figure for the kind of losses to the Exchequer that will be so sustained, but, given that our private investors show little enough appetite already for undertaking investment in manufacturing production in the country, in my view it would be foolish for a Chancellor even to take the chance that this change might militate further against the possibility of their spending money on developing and improving our productive potential in this society.
This was—so we were told—supposed to have been a broadly neutral Budget. Perhaps in general terms it will turn out to be broadly neutral, but the phrase "broadly neutral" has an air of benevolent inactivity about it. The impression conveyed by the use of the phrase is that it was assiduously offered weeks before the Budget to mitigate or to take the edge off any protest that might be building up, and to try to blunt the reception that the Chancellor might receive. It is the kind of phrase that is intended for those purposes. Although it does not entirely succeed—


as in the case of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), for instance—I am sure that it does have an effect on the kind of pressures that could be imposed on the Chancellor by Conservative Members. However, it conveys the idea that, if a Budget is not actually going to do any good, at least it will not do too much harm.
The problem is that, for the effects of an allegedly "neutral" Budget to be truly neutral, the country and its people must begin from a standard of equity and a parity of treatment, of justice and of opportunity, and obviously the people of this country do not begin from that standard. Neutrality that relieves the obligations of the rich while maintaining the obligations of the moderately well-off and the poor is not a neutral Budget. Neutrality in the face of a 13 per cent. fall in manufacturing output is not neutrality; it is abdication. Neutrality in the face of a 40 per cent. fall in manufacturing investment is unforgiveable inertia. Neutrality in the face of a rise of 2 million in unemployment, and in the face of the existence of 1 million long-term unemployed, is not neutrality; it is plain bare-faced malice. Neutrality when the number of people poor enough to claim supplementary benefit has doubled in the years of this Government's life is not neutrality; it is disdain for the needs of the poor of this country. What we have witnessed in the last five years is not neutrality, and nor is what we have heard this afternoon. It is a conspiracy against the basic interests of the British people, their needs for development, for expansion, for employment, for care and for opportunity.
We are told that the Prime Minister, against all that background, is batting for Britain. I believe that the Chancellor of the Exchequer is battering Britain, and his Budget this afternoon changed none of my views about the general direction that he wants to follow, and the disadvantages that it will impose upon the people. The inflation rate that they say is worth all of this history of contraction, of reduction, of stagnation, of public expenditure cuts and of disadvantage is their jewel in the crown. I begin to think that that jewel is actually made of paste. Everybody is in favour of lower inflation rates. We welcome them. [HON. MEMBERS: "Do something about it."] Hon. Gentlemen say, "Do something about it." We ask where it has come from. We are frequently told that the slump and the difficulty are a product of the world environment of depression, but inflation rates have been falling elsewhere, a product of the deflation that is afflicting other similar countries. We have a lower inflation rate, not because of any effective actions of this Government or the one before them. We have a lower inflation rate that is similar to, if not precisely the same as, the fall in inflation rates of all the other members of the OECD. [Interruption.] If hon. Members wish to check this, I will cheerfully furnish them with all the figures that they could possibly want from authoritative sources that they cannot possibly deny. We have at most a slight margin of lower inflation, and a slight improvement on the general OECD average. The price that we have paid for that 0·5 or 1 per cent. margin is a massive contraction in our capability to produce, to invest, to develop and to employ.
We listened to the Budget, and we listened to what the Government said. We are told again, as the Chancellor of the Exchequer said this afternoon, that there is a great

recovery in process that can be encouraged only by the kind of measures that he offered this afternoon. I say that that is absolute rubbish.
What we have is a recovery that goes more to the date of the last general election than does any contrivance of this Government, or any stimulus that they have given to the economy, a recovery based entirely on a credit boomlet. As to the major components of expansion, in 1983 consumer spending rose by £6 billion and Government consumption and investment rose by £3 billion. Of that consumer expenditure £4 billion was financed by credit, by hire purchase, by overdrafts and by credit cards, and all the Government's expenditure was financed by borrowing.
Here we have a recovery, so-called, coming entirely from that extension of borrowing, that increase in credit, from a Government who are headed by a woman who repeatedly tells us that borrowing is an activity that has descended directly as one of the devil's works. If it was such a devilish contrivance and if we had a regime in which, as the Prime Minister says, no one spent more than he earned, the current system of commerce would come crashing to the ground. But we do not have such a regime. We have a Government who actually got elected on tick by taking credit from a consumer boom that they sponsored by a temporary relaxation of credit raising. That was par for the course. It has been the same with all the Prime Minister's favourite nostrums. She was supposed to be helping middle managers. What will the Budget do for them? Those earning more than £20,000 have been the only ones to benefit from a tax reduction in five years of Tory Government. Today's shifting of the thresholds may add a few more, but it will not bring in the great army supposedly waiting with pent-up energies and enterprise to be released from the Labour Government by the Tories who would lift the burden of tax from them. Anyone earning less than £20,000—middle managers and everyone else—has paid more tax under the Tories, not less.
The people at the top, as the Prime Minister used to call them—the wealth creators—have received plenty of concessions, reliefs, bonuses and inducements. The only people to benefit significantly from any of the Government's tax concessions up to and including today's budget have been those on very high incomes. They have not rewarded the Prime Minister's faith or the country's hopes by doing anything that has actually subscribed in any dependable fashion to the continuing prosperity of the country. Last year those people shifted £10,000 million worth of desperately needed investment capital out of this country. They have ignored the blandishments, the encouragement and the exhortations of five years of Tory Government and have presided over the collapse of manufacturing investment. No Government who put their trust in the very rich will obtain much reward because even the CBI and the Institute of Directors are asking for tax cuts paid for by public expenditure cuts. The Institute of Directors makes no bones about being a reverse Robin Hood. From every other source and every other lobby, however, the call is to expand the economy, to put in more money, to ensure that demand makes production more worth while so that we can forestall continued import penetration and build for the future.
The Government have some questions to answer arising out of the Buget and the fact that they have had five years to correct the economy in their terms. Those questions


must be asked. When do they expect to get production back to a stable, steady growth rate of 3 per cent. per year? When do they expect to get back the 1·6 million manufacturing jobs and the 700,000 service and construction industry jobs that they have lost in their period of office? When do they expect to restore investment to the 1979 level? When will they ensure that Britain once again sells more manufactured goods to the rest of the world than it buys from the rest of the world? When will they restore our share of world trade to where it was in 1979? Those questions demand answers from a Government who presume to hold office for the next three or even four years and who say that they intend to stick to the same policies which have brought many parts of the country over the lip of ruin. Governments have to answer those questions, and this Government especially must answer them.
I envy the Government their power—power which they could use to do good, to provide care for the needy and help for the helpless. I envy them their power to sponsor production, to induce investment and to generate employment. I envy them all that power from the bottom of my soul—and from the bottom of that same soul I despise their utter failure to use that power for the advantage of the people of this country.

Sir Kenneth Lewis: The Leader of the Opposition always has a difficult task to perform in opposing the Budget as soon as the Chancellor has sat down, but his task is easier than mine in that he can simply oppose the Government root and branch whatever Budget has been produced. I did not expect to be called immediately, so I must collect my thoughts very quickly in supporting my right hon. Friend the Chancellor in what I believe is an excellent Budget. I am pleased to be called so soon, however, as my right hon. Friend the Chancellor is one of my colleagues, with a constituency in the east midlands. I appreciate that he has had to leave to attend a meeting upstairs, but I shall prompt him to read my comment that both in the style of his presentation and in its content his first Budget has been a triumph. I only hope that he can keep up in successive Budgets the high standard and fast pace that he has set for himself. I hope that this Budget will be the first of several which will allow him to get rid of the devil of excessive taxation that this country has suffered from for too many years.
There were only two aspects of the Budget that I did not much like. As a smoker, I was upset to hear that I shall have to pay a good deal more for the small panatella cigars that I smoke. [HON. MEMBERS: "Change to a pipe. "] I understand that pipe tobacco has got away scot free and I am glad about that because many pensioners smoke pipes. I do not propose to change to a pipe, so I shall just have to suffer the tax.
I was also somewhat disappointed as I have just bought and sold houses. Clearly, I did that too soon as I have given my right hon. Friend the Chancellor and the Government tax that they would not have had if I had waited a little longer. Nevertheless, I am glad that there has been a cut in stamp duty, on both house and share sales. I believe that this will help the City to earn more money. It is not a matter of simply helping the City, as the Leader of the Opposition suggested. Of course it helps the City, but it helps the City to earn more money. The City is a very high earner for this country, but it has been losing

business because of the stamp duty. My right hon. Friend the Chancellor has thus cut taxation to gain revenue, which must be a good thing.
I thought that my right hon. Friend would abolish the national insurance surcharge, but I did not think that he would have the nerve to do so at a stroke. The fact that he has done so pleases me especially as I and some of my hon. Friends, as well as a couple of my right hon. Friends, had a battle with the then Chancellor in the last Parliament on this very matter. We succeeded in convincing the then Chancellor that there was a need for cuts, but he never quite got rid of the surcharge. He led the field, however, in reducing it and now my right hon. Friend has ditched it altogether. It was always a bad tax. It was brought in by the Labour party, not by us. It rose to the extent that it became a deterrent to the employment of labour. Therefore, it was a tax that cost jobs. With 3·5 to 4 million unemployed, we cannot afford taxes that cost jobs.
In the statement that the Chancellor made today he said that this was to be a tax reform Budget, helping industry and helping jobs. Certainly it is the beginning of tax reform. The corporation tax cuts that have been announced will be helpful to small businesses in particular. Perhaps it is not realised by many people that a lot of small businesses do not have the chance to take advantage of the 100 per cent. capital allowances. They do not make the amount of profit that would enable them to spend in order to claim 100 per cent. capital allowances. But at the end of the year they still have to pay tax because they need to plough back in order to build up reserves. They need to do this to strengthen their capital base, to expand the business, and a man cannot plough back in a small business unless he first pays his tax. I believe that there is a case for exempting altogether from tax the first £20,000 or £30,000 of profit in a business. But short of this, at any rate the reduction in corporation tax which my right hon. Friend has announced today will be particularly beneficial to small businesses.
The assistance on capital transfer tax will also be helpful to small businesses because the problem about capital transfer tax as it affects small businesses is that it is too often imperative for small businesses to be sold. They are then swallowed up by larger businesses. Anything that can keep small businesses on the ground, active and employing people, growing and employing more people must be good. Therefore, I am pleased that the Chancellor has taken that point.
I know that the Opposition will feel justified in making a good deal of party capital out of the fact that investment surcharge is being got rid of—indeed some of them may genuinely feel that getting rid of the investment surcharge is simply helping the rich. But the right hon. Gentlemen on the Opposition Front Bench have got to recognise that there are many people who have no extra pension from their employment, because pensions from employment have only started to take off in the last 20 years. Before and just after the war, many employers did not provide pensions—in fact, pensions by companies started, I suppose, only in the middle 1960s. So many people are not getting very large pensions and some are not getting any pension at all from their employment. They have saved a little. Therefore, the investment income they are getting, which is at present surcharged, takes the place of a pension, and they have to pay an extra 15 per cent. tax on that.
I thought that my right hon. Friend might halve the investment surcharge. I was not sure that he would take it away altogether. I make no objection to his doing away with it, however, because it is a tax on savings. Furthermore, it is a tax on comparatively modest savings. The right hon. Member for Islwyn (Mr. Kinnock) is shaking his head. One can get an income of about £7,000 a year on about £70,000 of capital. That is not a very large amount of capital. There are people who get that by selling a house and, when they are very old, going into smaller accommodation. In that way they add to their pension.
It is true that this will help some people who are quite well off, but the balance of advantage must lie in giving support to those people who depend upon their investment income to take the place of the pension which they have not got.
Then there is my right hon. Friend's value added tax on take-away food. I suppose we could call this a takeaway Budget. When I come down the Ml, I go in to one of the motorway service areas for a break and a cup of coffee. If I take the cup of coffee out to my car, I do not pay VAT on it. If I have the coffee sitting down in the premises, I do pay VAT. So the Chancellor has gained revenue and at the same time done away with what is a rather stupid anomaly. It is a little wider than that. A range of food has also been brought into VAT.
The best action my right hon. Friend has announced this afternoon on VAT—and I am surprised that this has not been taken before and glad that it has been done now—is to make certain that countries importing into this country are covered by the same rules as we are when we are exporting to their countries. I was amazed to hear my right hon. Friend say that we would get as much as 1·2 billion income from this. It is probably a once-for-all income but it will certainly help in the present year. There certainly is a great need—and some of us have been saying this for some time—for a get-together of what were once thought to be the terrible twins, the Chancellor of the Exchequer and the Secretary of State for Trade and Industry, to deal with imports, because this country is suffering from a heavy sucking-in of imports, destroying our manufacturing base. We really are no longer in a position to countenance playing according to the rules while other people play according to their own rules. We have to see that British industry is given a fair deal, not only on exporting but on its ability to compete in the home market against the cheap imports that we have been drawing into this country for too long. 
Finally—and this is the main emphasis of the Budget—there is the switch of tax, so that a large number of people are taken out of tax altogether. This is what we wanted the Chancellor to do; this he has done. We have been in a ridiculous situation in this country in which people at the lower end of the scale have been picking up benefits and at the same time having to pay tax. My right hon. Friend has taken twice the number of people out of tax as might have been justified if he had simply played it on the basis of the rise in inflation. That is good. I hope that he can do more in subsequent Budgets. If we do not get a large number of people at the lower level out of tax we shall continue to be in trouble in the way our social security system works. Furthermore, we shall continue to be in a situation in which there is a disincentive to work.
So what the Chancellor has done in resisting giving further handouts up the scale among higher earners and in taking the lower-paid out of tax has the full support of those of us in the Conservative party who believe that at the lower end of the scale there should be no tax and that social security benefits should be equally geared to those who are in the lower income brackets. At present social security benefits go too high up the scale. They should be adjusted so that we can give more to those in real need. The starting point of that is to get the people at the lower end out of tax. That my right hon. Friend has done. I commend him for an imaginative and realistic Budget, a Budget that is fair and a Budget on which he can build for the future.

Mr. Ian Wrigglesworth: My hon. Friends on the alliance Benches will want to judge the Budget by the answers to three questions. First, will it buttress the growth that we have seen over recent months? Secondly, will it improve the competitiveness of British industry? Thirdly, will it help the least well-off members of our society who have borne the greatest burden of the recession over the past few years? The judgment that we would come to in answering those three questions is that the Budget is a bit of a curate's egg—good in parts and rather bad in others.
We are disappointed by the macro-economic and growth aspects of the Budget. Although the Budget will probably become known as the beer, chips and baccy Budget, the main message contained within it is that there is little hope for those who are unemployed that they will be able to find employment in the year to come and be able to get out of the poverty trap that many of them face. The growth that we have seen—I take issue with the Chancellor here—is not, as he said, a recovery
whose underlying strength is now beyond dispute".
I and my hon. Friends do not accept that for one minute. The recovery that has started is not firm or of great strength; it is slender. It is a weak sapling and it needs to be nurtured and strengthened by Government action if it is to be sustained.
We want to see British industry thriving. We want greater wealth to be created and we want to reduce unemployment. But the Chancellor's forecasts in the early part of his Budget do not encourage us to think that that will be achieved. As the Leader of the Opposition has pointed out, the growth of recent months has substantially come from a boost in consumer expenditure that has been financed largely by increased personal borrowing and the reduction in the savings ratio. It is unlikely that that consumer boom will be continued. Indeed, it was a consumer boom of that sort that the Chancellor's predecessor condemned roundly at the time of the 1979 election. The consumer boom needs to be sustained by increases in capital expenditure which have not been forthcoming in the Government's expenditure White Paper that we debated last week. There has been no reference to such capital expenditure in today's Budget.
We should like to have seen selective increases in capital expenditure that would justify some of the asset sales that the Government are making. The Chancellor will be able to keep down public sector borrowing by the massive sale of public assets which will be spent not on reinvestment in capital projects but on the Government's current expenditure. As I have said before, here we have


a Government who are selling the family silver to pay the grocery bills. That is not good accounting. It is not good for the economy and it will not underpin the growth that has begun. Therefore, on the macro-economic policy that the Chancellor has announced this afternoon he gets very low marks indeed. Nor has he encouraged us to think that he has sustained the growth that has begun.
The Chancellor has fared somewhat better on improving competitiveness. We welcome the abolition of the national insurance surcharge, on which we have previously asked the Government to act. He has reduced the tax burden on businesses, and that will help their competitiveness and help them to grow. It will also help them in the export markets. We welcome the fact that the burden of taxation on the business sector has been reduced. We look now to industry to increase its productivity further and to increase its share of markets abroad so that some further growth can be forthcoming from industry.
However, the Chancellor has been unable to introduce the changes in the taxation system that he set as one of his objectives. He wanted reforms in savings, business and personal taxation that would be his mark and would benefit the country. In a number of ways the Chancellor has failed to achieve his objectives. He has not helped the less well-off in our society. Indeed, he should have given them the highest priority, but instead, even though some of the changes that he has announced may have been justified in different circumstances, he has helped the better-off again in this Budget. The reduction in capital gains tax and the abolition of the investment income surcharge might have been justifiable if the economy were better, but when we have over 3·5 million unemployed and millions of people below the poverty line it is unacceptable that the Chancellor should be going out of his way to help the better-off sections of our society in this Budget. The Chancellor has got the balance wrong. He should have moved to help the less well-off rather than those with substantial capital and incomes behind them. We shall seek to amend the changes that the Chancellor is proposing in those spheres in order to switch the balance in the direction that I have described.
The Chancellor has also increased the income tax threshold. While that is welcome in many respects because it takes more people out of the tax net, nevertheless it helps all taxpayers, many of whom, like hon. Members and others in our community, do not need that tax relief at present, although it is always welcome. We have many less well-off in our society and it is to them that any tax relief should predominantly be directed. It is for that reason, that, instead of the Chancellor's adopting his broad-brush approach, we have proposed a system of amalgamating the tax and the benefits system so that the relief that the Chancellor can give is directed much more effectively at the poor within the community. Generally speaking, they consist of those who have families, and we look forward to hearing how large an increase the Government will introduce in child benefit after May. We hope that that will be substantial because it is towards child benefit and families that any relief that can be given should be directed.
During my time in the House I have often heard talk of the thousands of people who are being taken out of the tax net. It is a wonder that anyone is left in the tax net. However, people go back into the tax net during the course of the year. It is much better if revenue is available for the relief of poverty, that it should be directed to those families

who are really suffering from poverty rather than we should have the broad-brush approach that the Chancellor has adopted on this occasion.
Through the indirect tax burdens, such as the extension of VAT, the Chancellor has taken a retrogade step. We cannot be entirely critical because it is a broad-brush approach. The decision to extend VAT to take-away foods will be a tax on those who use that service because they cannot afford restaurant prices. Certainly people from the north make great use of take-away food facilities. and will deeply resent the burden now being put on fish and chips and the other take-away foods that sustain many members of our community.
The Chancellor has also extended VAT to building alterations, yet the construction industry is the last industry upon which the Chancellor should place burdens. One in five of the unemployed are from the construction industry. We wanted to hear the Chancellor say that he would take steps to help the industry and to help get some of its unemployed workers back to work. There is a great benefit in helping the industry because it is labour intensive with a low import content. The industry uses home products for its bricks and other materials, so any growth in the industry would not damage our balance of payments. We are disappointed that the Chancellor has imposed the VAT burden on the industry.
We are prepared to accept the other excise duties. It is now accepted by both sides of the House that the Chancellor virtually indexes the excise duties on drinks and other such items. I shall not comment on the balance between beer and wine—[Interruption.] Some hon. Members tempt me to do so. We welcome, even though with slight surprise, the fact that the Chancellor has not gone all the way on beer duty. Those of us in the north feared that there would be a 3p or 4p increase. We recognise the burden placed on the Chancellor by the European court, but he has increased the duty by only 2p, which is a relief. However, that increase will not please many of our constituents.
I have dealt with the main points that concern us. I wish to emphase what I said at the beginning of my speech, which is that the major disappointment is that there is no change on the macro-economic front. The demand in the economy is not being increased. Our hope that the Chancellor would underpin the recovery that has now begun by introducing proposals for capital expenditure—to get people back to work and to increase the wealth of the country—has not been fulfilled
We condemn the Budget on those macro-economic grounds, although we are grateful for the help being given to industry. We regret that the Chancellor is not helping the poor in our society. We hope that during the coming year he will realise that the policies on which he is intent will maintain unemployment at 3·5 million. We hope to demonstrate that that is unacceptable to the people of this country. We want him to return to the House with proposals for capital expenditure increases that will start getting people back to work.

Mr. Robert Banks: I am most grateful for the opportunity to make an early intervention in the debate, to express a reaction to the statement of my right hon. Friend the Chancellor of the Exchequer.
I wish first to congratulate my right hon. Friend on the manner in which he made his statement and also on its


content. Many journalists have been speculating during the last few weeks leading up to the Budget about what sort of budget it would be—as is usual. Many were saying that it would be a standstill Budget—perhaps a touch here and a touch there. Others were saying that there could be a new fundamental reformist Budget on the way. My right hon. Friend has managed to combine the two. In many cases, simply by use of the index, he has altered certain of the tax rates; on the other hand, he has instigated a reformist campaign.
I want to take one or two points from the Budget and comment on them. When my right hon. Friend referred to MI as being replaced by MO, I found that difficult to follow. We shall need some elucidation on that later. I shall have to study carefully the implications of that statement.
I especially congratulate my right hon. Friend on reducing stamp duty. That is a valuable step towards making it possible for many more people, especially small investors, to enter the share market. That market should be open to all investors, small and large. It will also be immensely valuable for house purchase. It will provide a great incentive to those, especially first-time buyers, faced with considerable expenditure when buying a house.
I agree with my hon. Friend the Member for Stamford and Spalding (Sir K. Lewis) on the importance of the abolition of the investment income surcharge. That is an important step in encouraging people to conserve their savings and their capital. It is something that we must extend to all parts of the community in order to encourage people to put more of their money and their savings to one side to provide for the extras that they will need in their retirement.
On the subject of capital allowances, all in all it is a step in the right direction. What is absolutely right is that businesses should make their decisions on the basis of their business expertise, and not be unduly influenced by the allowances available to them. In many cases those allowances distort their decisions and can be counterproductive in the longer term.
What is important in the way in which that question has been dealt with by the phasing down of capital allowances is how it has brought forward investment. This is the time, if ever there was one, to invest in business. We have heard a glowing statement from my right hon. Friend on the progress that our economy has made during the past few months. Growth in production is up by 6 per cent. With the confidence that industry now has in itself to perform, we stand at a point in our history when we can use that to invest in new plant, new ideas and, in particular, new companies.
In order to do that, we need all the expertise available to us. For that reason, I regret that my right hon. Friend has withdrawn the tax concessions for foreign nationals employed in this country. We need those people in our industry. If they have the expertise, it is as well for them to be here rather than in their own countries or another country where they can compete with us. We need all the people that we can draw to this country to make our economy work.
I especially congratulate my right hon. Friend on his bold step in abolishing the national insurance surcharge. I am sure that that will be welcomed by hon. Members in

all parts of the House because it will be a huge incentive to industry. More money will be available for the investment that I have described.
On the changes on tobacco, spirits and petrol, I think that my right hon. Friend has it absolutely right. Exactly the right decisions are being made. I do not think that anybody in his right mind could quibble with the small increases that have been made or, indeed, with the decreases that will be made on table wines.
The question of VAT and building work alterations is, I think, a difficult one. Undoubtedly we all want to see many old and dilapidated buildings restored and improved. This obviously will be a hindrance to it. Nevertheless, there has been an anomaly in the sense that VAT was payable on some building works but not on others. Of course, it would have been nicer, better and more encouraging for the construction industry if VAT had been taken off both sides, so to speak, but I regret that VAT at this juncture has now been imposed on the alterations that will be made to buildings.
I can to a certain extent counteract that by welcoming considerably the imposition of VAT to be payable within a month on imports. This is really long overdue and it will be a great benefit. I understand that about £1·2 billion will accrue to the Exchequer in this financial year as a result.
Above all, one has to welcome the raising of the tax threshold. This is something that I think has come as a surprise because my right hon. Friend the Chancellor of the Exchequer has taken a larger step than many of the pundits would have predicted. I particularly welcome this move. I do not think that we can deny, however rosy the picture we can present of our present situation, that this country has huge problems to contend with. We must take into consideration the problems that we have had to contend with in inflation, a depressed economy and everything else. We have, of course, the problem of long-term unemployment. This is not peculiar to our country, because it is happening to all countries in the western world.
All the predictions from OECD, the EEC and elsewhere point to a rising trend and a hardening trend in the numbers unemployed. Therefore, we have to turn our minds most particularly to how we should handle this particular situation. It bears, of course, heavily on the young. I believe that the schemes that have been brought in to provide work opportunities have been immensely successful. Those whom I have spoken to who have partaken of those schemes have all spoken well of the instruction that they have derived from them and the value that they have obtained.
But it is the people at the other end of the scale, perhaps in the late fifties, who do not yet qualify for a pension, who are forced to live on social security, who do not have the benefit of long-term social security, and who really do not have a very strong hope of getting employment, who concern me most. I think that what we have to do in this area is not to pretend that there is hope for employment to the point of 65, to the retirement age, but to come to terms with the fact that there is a good possibility that these people may get part-time earnings. This is the area that I think we need to tackle by raising the level of part-time earnings which people in this particular age bracket can obtain before losing their right to benefits. This will improve their income considerably. It is a very difficult


period for anybody in that time of life when he is called upon to adjust to a position of unemployment before reaching retirement age.
Of course, I recognise that a study is being undertaken on reducing the retirement age, and that I welcome. We shall look forward to hearing what that report has to say.
I spoke of the huge problems that face this country. One of the greatest problems is, of course, the long-term decay which we have experienced over the years and the effect that this has had on our infrastructure. We have to a certain extent imposed on ourselves our own sites of dereliction by demolishing buildings and then finding that there was nobody there to put up new buildings instead. I have particularly in mind, of course, our inner cities. Coupled with that are the areas of planning blight where grand schemes were proposed. The planners had to bear those schemes in mind but nothing was done to the property and it went into decay. We have those areas to consider. We have the central parts of our infrastructure, whether it be our Victorian sewers or our unfinished road network, which because it is unfinished causes all our congestion and the time and money that is lost through trade being held up.
Then there are the repairs that we have to consider to those buildings which were put up in the 1950s and even the 1960s, where there are leaking roofs. I can tell you, Mr. Deputy Speaker, of several schools, and certainly hospitals, in my constituency which were constructed on this pattern and which have proved to be very costly to maintain and have produced innumerable problems.
So the Government have a huge problem to deal with. I believe that they can deal with it in two distinct ways. One way is by marrying as much private capital as possible to dealing with some of the new developments that are necessary, and this is being done in the enterprise zones. Not least, for example, is the excellent work of the London Docklands development corporation. I hope that in time these enterprise zones can be replaced as they become developed by new areas in different parts of the country.
Clearly there has to be a very careful balance as to how many enterprise zones are established because the money is not available to deal with them all, but I think that private capital does have a major part to play in getting these zones off the ground. Local authorities themselves have a great deal that they can do, particularly in cases where there are rows of semi-derelict houses which could be auctioned off or even, for that matter, given away to people who will, in fact, bring them round, possibly with the aid of a grant and their own endeavours.
But it is the expenditure on maintaining our infrastructure that is of vital importance. If we maintain our infrastructure now, we shall be saving ourselves money in the long term. This brings me to the question of the borrowing requirement, which is set, as I understand it, at £7·5 billion. We may find it necessary—I would support this—to extend that borrowing requirement if it is necessary to use the money to maintain our infrastructure in such a way as to prevent us from storing up excessive expenditure in later years by not keeping our buildings and our structures up to scratch.
The expenditure generally has to be divided between capital projects, the maintenance of our existing buildings and, of course, our running costs. Our running costs include, of course, the cost of running the welfare state. That is a very difficult and expensive balance to achieve. However, I congratulate my right hon. Friend the

Chancellor of the Exchequer on reducing the size of the Civil Service and establishing a new target which will, in fact, bring us to 590,000 civil servants by the end of the next six-year period.
My right hon. Friend the Chancellor of the Exchequer has given us a Budget which offers a stimulus to industry, and which will rejuvenate our industry on which everything else depends. Without a strong industry we shall never have the money to do all the things that we require to be done. I support all that my right hon. Friend has done, but in particular I would say that on the textile front there is an area where in fact he has the liberty to undertake measures to improve investment in new machinery to support the textile industry. The opposition in Europe has received considerable grants and, in particular, the grants in Belgium have increased dramatically in the last year from 6 billion Belgian francs to something like 40 billion Belgian francs.
I do believe that there is an unfair competitive element within our own EEC which my right hon. Friend could have taken some steps to rectify in this Budget to assist what is our third largest exporter in manufactures, Our technologies are doing well. Tourism is doing immensely well. There are 200,000 more people employed in the service industries. I made a note at this point to seek to persuade the Chancellor—as I have done in the past—to bring the hotel building allowances from 20 per cent. up to the 75 per cent. building allowances enjoyed by industries. With the measures that the Chancellor has announced, that point is out of date, but tourism must be placed on the same footing as industry.
The future of this country rests with our industries and, not least, on the new small businesses that are beginning to emerge. I personally give the fullest support to my right hon. Friend for the measures that he has announced and, in particular, the measures to give help and assistance to all those in business who are seeking to make this country once again an economic stronghold.

Mr. Donald Stewart: The hon. Member for Harrogate (Mr. Banks) says that this Budget will stimulate industry. That may be so, but, unfortunately, in many parts of the country there is no longer any industry to be stimulated. The Chancellor talked about the changes in share transfer duty, the abolition of the investment income surcharge, and cutting corporation tax, as if it was general practice in the country for everyone who is of age to dabble on the stock exchange. I was reminded of a remark made years ago by the late Lord Butler, when he was Chancellor. It was long before my time here, but I read it. During a freeze—though not a freeze on the scale to which we have recently become used—he said that the trouble with the country was that we had all been enjoying far too much pheasant and port. Unfortunately, that was far from being the staple diet of the inhabitants of the United Kingdom.
It is a cliché to say that the Budget is a curate's egg. That phrase could be applied to every Budget, and I may have been guilty of using it in the past. However, there are certain things in the Budget which will be welcomed on both sides of the House. The abolition of national insurance surcharge is extremely welcome. One wonders why that tax was brought in in the first place by a Labour Government, and why the Conservative Government retained it. Clearly it had no justification.
I welcome the 10p increase on cigarette tobacco. I bear no malice towards cigarette smokers—although I should declare an interest in that as a pipe smoker I feel some relief at the action taken by the Chancellor—but I welcome the increase on health grounds. The Government should be using this tax as a means to discourage people from smoking cigarettes. The increase is a wise move.
I am strongly opposed to the new tax on petrol and derv and the tax on cars, which will hit my constituency extremely hard because we have no other form of transport. The Western Isles are suffering from the loss of £2 million, which is causing severe difficulties in all aspects of the work of the local council. The money has been spent on defence and other matters of that kind. The petrol tax and the duty on cars will add to our difficulties. They will be extremely unpleasant medicine for my area, and similar rural areas.
I welcome the abolition of the duty on kerosene, which will help poor people who use kerosene to heat their homes.
The tax on a bottle of spirits, including 10p on whisky, is not as drastic as was forecast. I do not pretend that this is a shattering tax, but the Chancellor should have borne in mind the position of the whisky industry. The volume of whisky exported in 1983 fell by 9 per cent., and was no higher than the figure for 1974. In the next few years the sales of whisky both in the export and the domestic market will have to pick up considerably. Last year there were many lay-offs in the industry. In February this year, the Distillers Company announced its intention to lay off 800 workers at its 34 malt distilleries. The Chancellor might have remembered that before applying the extra duty.
The imposition of VAT on alterations to buildings is complete regression. It is an extremely bad tax in every way. As the hon. Member for Stockton, South (Mr. Wrigglesworth) has pointed out, one in five of the unemployed are from the construction industry. Something should be done about putting people back to work in that industry. As the hon. Gentleman pointed out, it could be done with materials bought on the home market which do not need to be imported. As the hon. Gentleman also pointed out, the Government are preventing the proper maintenance of the housing stock and going out of their way to impose 15 per cent. VAT on alterations to buildings. In my constituency, the number of houses which are below a tolerable standard is one of the highest in the country. The tax will be an appalling imposition on people who want decent homes.
The tax on take-away food is divisive in terms of area, and also divisive as between poorer people and the better off. A tax on food is most unwelcome in view of what the Chancellor has done for the better-off sections of the community.
I commend the Chancellor for the improvement in the tax allowances. This will be welcome, although we must not fall into the trap of thanking the Chancellor for taking less of our money than he has taken in the past. There is something to be said for taking the smallest incomes out of the tax bracket. However, although Chancellors try to do so from time to time, we never seem to be able to put an end to the poverty trap.
I am appalled that VAT on charities is to remain, and that there is no word about removing the surcharge on electricity, which is another tax that cannot be avoided.
The Chancellor took great credit for the balance of trade figures, but these are largely due to the trade in oil which last year brought in £6,924 million as against a deficit in the balance of trade in other goods of £7,878 million. The favourable balance is largely based on the Government's ability to corner the oil from the Scottish sector of the North sea—which we believe is Scotland's oil. Even in a British context, the oil has been grossly wasted. An asset has been squandered, when it should have been used to rebuild the nation's industrial base. Scotland has not derived much benefit from the oil.
Scotland's outlook continues to be bleak. The Fraser of Allander report for February 1984 concluded that business optimism in Scotland appeared to be less buoyant than for the United Kingdom as a whole. There is not much in the Budget that will change that.
This is a Budget for the better off. There is nothing to bring about substantial reductions in unemployment. There is nothing to give hope to young people on the dole. Despite one or two excellent moves, the Budget is on the whole—as the Chancellor said—designed to keep the Government on the path that they have marked out. That is the most chilling news of all.

Mr. David Knox: It is always a pleasure to follow the right hon. Member for Western Isles (Mr. Stewart). He is one of the most popular Members in the House. I found myself in agreement with several of the points that he made. I shall return to them in due course. The right hon. Gentleman always sets a good example when he speaks in the House—the example of brevity. I hope that, to some extent, I shall follow him in that respect.
I should like to thank you, Mr. Deputy Speaker, for calling me at this early stage in the Budget debate. I congratulate my right hon. Friend the Chancellor on the manner in which he delivered his first Budget speech. It was commendably short and interesting and my right hon. Friend held the House throughout. That is an achievement that has not been the mark of the Budget speeches of all his predecessors, certainly not in the 14 years during which I have been here. I shall have some critical remarks to make later but much that my right hon. Friend has done is greatly to be welcomed.
I welcome the large increase in the basic thresholds for income tax. My right hon. Friend has increased them by more than double the amount required, although that is no more than the House has a right to expect, bearing in mind the fact that he was one of the authors of the Rooker-Wise-Lawson amendment less than 10 years ago. The change will take almost 1 million of the lower-paid out of income tax. That cannot be other than good for them and administration. Nobody likes to pay increases in excise duties but my right hon. Friend has proposed modest increases and made them reasonably acceptable.
I also welcome the abolition of the national insurance surcharge. It is a bad tax at any time and is even worse at a time of high unemployment, as it is a tax on jobs. I am glad that it is going—it should never have been introduced. I welcome, too, the changes and reductions in corporation tax. I have long felt that it was a tax on efficiency. It penalises success and any reduction can only


be welcomed. I am pleased about the improved incentives for share schemes. For many years I have been a member of the Wider Share Ownership Council and believe that spreading ownership is beneficial economically and socially. I have some doubts about the proposals concerning life assurance. The changes that my right hon. Friend proposes may be technically correct, but I am not so sure that they are politically wise. I hope that he will think again about them.
This Budget, like all Budgets, will eventually be judged not on the "technical changes" it makes but on its general effect on the well-being of the British economy. It is in that respect that I find it most disappointing. My right hon. Friend has said that it is a broadly neutral Budget. I believe that it falls short of what is needed in present circumstances. The British economy is operating substantially below capacity—buildings and capital equipment in the private and public sectors are not fully utilised, more than 3 million people are out of work and we have under-utilised capacity of 15 per cent. and probably much more. Unfortunately, the Budget will do nothing to bring any of that unused capacity into use. The under-utilised buildings and capital equipment will increasingly be incapable of achieving their full productive potential if they are not used. Worse still, in the absence of rising demand, they will not be replaced. In other words, new capital investment will not take place on a large enough scale. We shall continue to have 3 million people out of work with all the economic waste and social corrosion that that involves. The situation might well get worse.
My right hon. Friend was quite bullish about economic growth. He rightly claimed that we have had 3 per cent. growth in the past 12 months and he forecast that we can look forward to another 3 per cent. growth this year. The growth of the past 12 months has not stopped unemployment rising. It is therefore reasonable to assume that, at the very best, with the same rate of growth this year, we can expect only a stabilisation in the level of unemployment and possibly not even that. We are told, however, that things are going well just now. What will happen when the economic cycle turns down again, as it will? When that happens, it is inevitable that unemployment will once again start to rise steeply. Even if we could have steady growth at, say, 3 per cent. for a few years, that provides no prospect of unemployment falling from its present disgracefully high level. There appears to be no prospect of the slack in the economy—there is at least 15 per cent., as I have already said—being taken up. That is politically and socially unacceptable.
We live in a country that once enjoyed the highest standard of living in the world. That is no longer the case. We are now well down the international league. Unless one believes that the appetite of the British people to increase their personal consumption has been satisfied—demands for wage and salary increases do not give that impression—there is great potential for increased demand in consumer goods and services, the production of which would use up the slack and provide jobs for the jobless. Unless one believes that our social and public services are perfect and that no one wants to increase or improve them—evidence of that is pretty thin—there is great potential for increased demand to improve social and public services, the provision of which would utilise the slack and bring the unemployed back into employment.
On the one hand, we have potentially a substantial increases in demand for goods and services and therefore for the labour to produce them. On the other, we have considerable spare capacity. The task of Government is to match the two. That is the way back to a high level of economic activity and a return to full employment.
I do not believe, never have believed and do not think that there is any evidence to persuade one to believe that that can happen on its own other than very temporarily and by sheer chance. It requires skilful management by Government to get right the balance between total effective demand in the economy as a whole and supply potential. The Government did that between 1945 and 1970 and I find it difficult to understand why so may people today no longer believe that it is possible. I include Opposition Members in that group. In practical terms what is needed now and what I believe the Budget should have provided is a steady increase in demand over and above the increase that my right hon. Friend believes will take place. I believe that that should be brought about partly by reducing taxes, so increasing personal consumption, and partly by an increase in investment in the public sector.
I know the argument that if we increase personal consumption further we shall merely suck in imports. There is much truth in that argument, but if we cannot take some risks in that respect now when we have North sea oil I shudder to think what will happen when the oil runs out. I believe that some of the increased consumer demand will find its way into the domestic market and encourage British manufacturing industry, which has been so badly clobbered in the past five years.
The argument for increased investment in the public sector is more clear-cut. Much of it would he in construction, which is not import-intensive. In parenthesis may I add that I regret the VAT change announced this afternoon affecting construction. An increase in investment in the public sector, particularly in construction, would not only bring into use some of the idle capital equipment and labour, but would add to our stock of housing, to our sewers, roads and so on, all of which have been allowed to deteriorate over the past 10 years, and all of which will have to be replaced eventually. Surely, at a time when there is so much slack in the economy, we should be pressing ahead with such investment.
Of course, tax cuts and increased public investment would involve an increase in the public sector borrowing requirement, and why not? At the moment, the PSBR seems to be the virility symbol of the British economy—as long as it is low, it does not seem to matter that there are 3 million out of work. Is it not time that we got this nonsense out of the system? The level of public borrowing should be determined by our position in the business cycle. In conditions of depression such as those at present, the Government should not be afraid to run deficits, even quite high deficits. In conditions of high economic activity, the Government should run surpluses, even quite high surpluses. By doing this sensibly and by managing the economy in this way, we would avoid both underheating and overheating the economy and we could also have a much more stable economy than we have had in recent years.
I am afraid that my remarks about the economy in general are somewhat gloomy, but I do not see anything in the Budget that will raise the level of economic activity, other than marginally, and help to reduce the level of unemployment. In the debate on the Gracious Speech last


June, I expressed the view that the Government should, in this Parliament, give the same priority to the reduction in unemployment that they gave to the reduction in inflation in the previous Parliament. I see little evidence in today's Budget that there has been this change in priority.

Mr. Roy Hughes: This is the Chancellor's first Budget and we would all agree that he has an awesome task. Before the Budget there was speculation, which was confirmed by the Chancellor, that this would be essentially a neutral Budget. How such a proposition could be seriously considered when there are 3 million to 4 million unemployed is beyond belief. Perhaps it is a sign of the Government's new cynical approach to this greatest social evil of our time. We know that the Chancellor has tinkered with taxation and some of the results are beneficial, but some are not. It is not true to say, as he did, that recovery is well under way.
Many predicted that, with such a high level of unemployment, there would be violence on the streets. By and large, fortunately, that has not happened. Nevertheless, our young people have become part of the lost generation. Even the Prince of Wales has come to realise that delinquency is associated with unemployment. There is an old saying that the devil finds work for idle hands, and that is true today. In generations to come, we shall reap the whirlwind for trying to solve Britain's economic problems by the maintenance of a large pool of unemployed.
What applies to youth applies equally to elderly people. What a soul-destroying experience it must be when a man of 50 is faced with the fact that he is unlikely to work again. We have seen the wasting of the bonanza of North sea oil. It has been squandered on unemployment benefit. What a tragedy this is, as the right hon. Member for Western Isles (Mr. Stewart) has already pointed out. That money should have been spent on regenerating the British economy. Our people should have been put back to work to build a new Britain. At the same time, they would regain their self-respect.
Admittedly, as a result of the Government's policies and general deflationary policies throughout the world, inflation has come down, but it is becoming clear that this trend in itself does not necessarily produce jobs. The Government's monetarist experiment has proved to be a disaster, as the alternative Conservative Front Bench, led by the right hon. Member for Old Bexley and Sidcup (Mr. Heath), readily acknowledges.
This Budget should have been about steps to reduce massive unemployment. It should have been about ironing out the inequalities in our society, which have become so much more marked, particularly with our low level of economic activity. For example, the pensioners should have been given a far better deal. They tend to spend the addition that they receive and so give an immediate stimulus to the economy. We should have rebuilt the infrastructure of the United Kingdom. Surely a period of economic recession is the time to tackle this. We could make a start by replacing our Victorian sewers, for instance. Many new roads are required, as is railway modernisation, housing, schools and hospitals, but what do we have?
In the past couple of days I have had a news release from the South Wales region of the National Federation of Building Trades Employers. It contains a statement by the president, Mr. John Richards, who says:
Building contractors in Wales are still looking for the light at the end of the recession tunnel. Even the hitherto buoyant repair and maintenance sector is now suffering … Public sector expenditure plans already announced by the Welsh Office point to a further decline in the building industry.
He went on to call for action in this Budget. Instead, the Government have put VAT on home extensions, modernisation and so on, at a time when there are literally hundreds of thousands of building workers standing in the dole queue. In view of the standard of some of the housing in areas in Wales such as the town that I represent, much more needs to be done. All that we have seen from the Chancellor is additional taxation. We should appreciate that the message that I have quoted from the president of the NFBTE comes from people who are normally great supporters of the Conservative Government.
Our publicly owned industries are also crying out for investment. For instance, the south Wales coalfield with all its rich seams of anthracite, which is in such great demand in markets of the world, should be developed, and now is the right time. Had it been developed, we might have avoided the present conflict in the industry.
Charity begins at home. At Llanwern, the steel industry is crying out for new investment, yet, despite that basic need for new investment, there is accelerated movement towards investment overseas as a result of the Government's policies.
It is reckoned that 11 million people subscribe to pension funds, with accumulated savings of £60 billion. That wealth is essentially created in this country, yet much of it is invested overseas. The amount involved has doubled since 1979, when the Government were elected. This afternoon, the Chancellor should have announced measures to ensure that those funds, or the best part of them, would be invested in British industry. Likewise, measures to stimulate the economy tend to suck in imports, as the hon. Member for Staffordshire, Moorlands (Mr. Knox) said.
Last week, I went to Turin to visit the Fiat motor industry. The first factory that I visited in Turin employed no fewer than 44,000 people, and another factory within the same organisation just down the road employed a further 10,000 people. My estimate was that the cars produced there have 95 per cent. local content. Fiat supplies more than 55 per cent. of the Italian home market. We witnessed evidence of the introduction of advanced technology. Vehicles like dodgem cars with no drivers were going to and fro taking an engine here or dropping it there. The so-called woodpeckers were popping out at a preordained time to fix a screw here and a nut there, yet, as the vice president of Fiat told us, the company will remain labour-intensive.
A successful motor industry is vital to this country, too. I was glad to hear of the investment plans by the Talbot Motor Company. At least that French multinational seems to recognise that British workers can be efficient producers of motor cars. The behaviour of the Ford Motor Company and Vauxhall Motors annoys me, however, and I should have liked to hear the Chancellor announce action to be taken about that. Those companies are playing fast and loose with Britain. Vauxhall places glossy advertisements


in the Sunday papers with the slogan "Better by Design." They do not tell the British people, of course, that the cars are wholly designed in Germany.
The Ford Motor Company at Dagenham is a further example. Company representatives boasted to me when I visited the Dagenham plant about the small quantity of British steel being used in their vehicles. It is even more criminal that Ford and Vauxhall are supposed to be British motor manufacturers, yet each year they import thousands of motor cars into Britain. I shall give an example of an hon. Member who bought a new Ford Grenada car, the parts of which were all made in Germany. He was able to unearth all the paperwork, and it included the statement, "Please ensure that Dunlop tyres are fitted to this vehicle", presumably to give the impression that the car was of British manufacture. Such mass imports distort our economy as well as deceive the British people. The Chancellor should have done something about that.
The Budget holds out no hope for me or for people without a job, living in poor circumstances. The country needs a new Chancellor and a Government with policies to tackle the terrible problem of unemployment.

Mr. Peter Bottomley: The country would do rather better with a new Opposition than a new Chancellor. The reception that the House gave to my right hon. Friend's Budget statement shows that much of what was said came as a surprise to the Opposition, who were not quite sure what to say. My view was confirmed by the speech of the right hon. Member for Islwyn (Mr. Kinnock), the Leader of the Opposition.
There are serious concerns about this country's economy, and both my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox) and the hon. Member for Newport, East (Mr. Hughes) touched on the critical importance of creating the conditions under which unemployment will start to fall. That requires output to rise faster than the rise in productivity. We need to create effective demand within this country and make sure that we can produce goods and services so that we start meeting the demand from this country and overseas.
There is no shortage of demand in this country. The problem of effective demand can be met by effective supply. I recall the years when Government support to nationalised industries, including British Leyland, was rising year after year, yet the number of cars produced per employee was falling year by year. There is no point in leading ourselves into cloud-cuckoo-land by arguing that an ever-increasing money supply or level of public subsidies to ailing industries will do any good.
This morning's news about the dairy side of the common agricultural policy showed that it is possible to analyse a problem and make proposals to deal with it and that there are simple solutions to simple but tough problems. My right hon. Friend showed the same attitude this afternoon by removing distortions in our tax system, which I thoroughly support.
I would have gone a stage further, however. The absence of any mention in the Green Paper about the cost of mortgage interest relief on house purchase leads me to hope that my right hon. Friend will come forward next year with proposals to bring common sense into the mortgage interest relief system, so that help is concentrated at the time of family formation, when people need it.
The Chancellor has proposed measures on life assurance premiums. The question whether they should all be introduced at once and what will happen to existing life policies in the future can be taken up in further debates on the Budget and the Finance Bill. The way in which the Chancellor showed that he was willing to tackle some of the flotsam and jetsam of tax reliefs and allowances and concentrate help where it is most needed and will be most productive deserves the support of hon. Members on both sides of the House and, indeed, on both sides of the Conservative party.
I would deal with measures that would lead to greater employment, but my hon. Friend the Member for Moorlands has ably done that already. I echo his plea that the Government should show the same effective concern for that, even though they may not have the same indirect power as they have been shown to have over the level of inflation. As I said in the public expenditure debates a week or so ago, there are limits to what the Government can effectivly do to the economy. There are limits to the effect of financial changes on people's behaviour. The Government should make fiscal and tax changes where possible and be willing to tackle many of the vested interests not tackled in the past and brought out into the open because it was thought to be politically unwise.
I rest my general principles of taxation on the idea that the tax base should be as broad as possible and the rates of tax as low as possible. That is why I am willing to talk about matters such as mortgage interest relief, and go along with the Government's proposals on take-away food and VAT on building alterations.
Speaking as one who has seen a number of take-away food shops brought into his constituency in the past few years, I believe that putting VAT on take-away food will stop the artificial incentive to customers buying food, taking it into the street to eat it, and being rather careless about where they leave wrappers. It is worth while to encourage people to eat their food inside the place in which they bought it. That provides greater employment for those inside, who are paid to clear up afterwards, and is better than leaving it to the public services to clear up in the street.
There are difficulties for every affected group. They apply just as much whether we are dealing with the milk surplus, people in the life assurance industry or many other professions and trades that are beginning to find that their practices are being examined more carefully by the Government, who are trying to introduce greater competition. Throughout trades and services, we should leave the people a more unfettered choice on how they use their money. My right hon. Friend the Chancellor is absolutely right to deal with the distortions of the various opportunities for people to save money. I should like to see, in time, not a great Professor Meade approach to taxes on spending, but more rationality in the way in which we deal with savings.
It is also right to be willing to say openly, as I do, that by giving help to people to become prosperous we are more likely to start generating the increase in employment seen in the United States not only over the past year or two, but over the past 200 years. I have always believed that it is right, in opposition to Labour Weekly, which normally believes that it is wrong, that someone should be able to take a wartime gratuity, build up a business that employs hundreds of people, make hundreds and thousands of pounds, but pay a good proportion in taxation. That is


worth while and right. It is not exploitation of one person by another. What I regard as exploitation is what Labour Weekly used to do. On page 13 it would tell people how to win £500,000 in the football pools using Labour Weekly's perm No. 47. I think that I have used that example often enough for Labour Weekly to have dropped its football pool forecasts.
We must encourage people to do what will help themselves most and will also help others. The general thrust of the Budget is to get rid of artificial distinctions between investment income and earned income. It should be openly stated that, whether on the company or personal side, high rates of taxation are counter-productive, lead to distorted decisions and should be eliminated.
In the past, I have spoken about the importance of child benefit. I am not in a position to talk much about that, nor has the matter been raised in the debate, because those announcements will be made by my right hon. Friend the Secretary of State for Social Services in June. It is important to realise that child benefits should be regarded as a tax allowance and should be seen on the right side of the public expenditure estimates.
As long as the Government make proposals, however spaced out over the years, which radically tackle all the distortions in the economy, I for one am willing to defend them to the interested groups that might be offended. The general thrust of what the Government are doing is a necessary reversal of much of what has happened in the past 20 years. It is possible to create prosperity. The Government are approaching the matter in the right way, and I give them my whole hearted support.

Mr. Austin Mitchell: I shall not follow the hon. Member for Eltham (Mr. Bottomley) in his attempt to praise the Budget with faint damns. The essential nature of the Budget it that is is moving deckchairs on the Titanic. It does nothing about the fundamental problems of the economy. As with the curate's egg, there are parts of the Budget that we can praise and parts that merit condemnation.
In that context, I cannot follow the hon. Gentleman's remarks on take-away food, representing, as I do, a constituency that provides the fish, surrounded by a county that provides the chips. In imposing VAT on take-away food, the Chancellor has made a monstrous attack on working people. What he has also done with regard to manufacturing industry shows a serious weakness. Industry has been badly battered by the way in which the Government run the economy. The cuts in the allowances for new building and equipment will create a serious difficulty for that industry, which needs investment and stimulus to grow.
VAT is also being imposed on building improvements. When improvement grants are being cut, to tax those improvements adds insult to injury. That will cause a serious setack to attempts to modernise our housing stock.
It is difficult to justify the measures that are being taken when the Chancellor is handing out considerable sums to the Government's friends and the better-off sections of society, particularly with regard to investment income surcharge, stamp duty on stocks and shares and the changes in capital gains tax and capital transfer tax, all of which are wrong, when the right hon. Gentleman should

be spreading the burdens of taxation evenly and fairly and 7 million people are on benefit, many below the poverty line.
Conservative Members have been desperate in their attempts to find something to praise about the Budget. The real problem is that it focuses attention on the conjuror's balls in the air. The conjuror's trick is to keep the balls in the air, but now the conjuror's feet are sinking in the mud—indeed, he is sunk in the mud up to his knees. The basic economic difficulties of the country have become worse rather than better. The Budget does nothing about that.
The right hon. Gentleman has prevented himself from doing anything about those problems because of the tight constraints that he has put on himself through the medium-term financial strategy, which was his own invention and which, masochistically, has been tightened in the Budget, but most of all he has done so because of his curious obsession with the public sector borrowing requirement, as if one could measure an economy and the effect of Government measures on the economy in that one index. The Institute for Fiscal Studies makes this point. It is as if a company chairman came to the annual shareholders' meeting and talked only about the company's new borrowing. He would not be chairman of the company for long if he ignored all the other factors—output, employment and the shape of the real economy. The Chancellor is concentrating on just one measure. His obsession with public sector borrowing and getting down the PSBR have distorted his approach in the Budget.
We are in a disastrous economic situation, for which Government measures are largely responsible. The pound has been put up to an unrealistically high level, affecting our exports and bringing in a flood of imports, because of the way in which interest rates have been kept unnecessarily high and, most important, because of the contractionary stance that the Government have taken in their fiscal policy, when it is essential to maintain an expansionary stance. That has made our economic difficulties worse than they should have been. Employment in manufacturing, because of the contraction of manufacturing, largely forced by the Government's measures, is down 20 per cent., almost entirely accounting for the increase in unemployment that has taken place. That increase—

Dr. Alan Glyn: rose—

Mr. John Browne: rose—

Mr. Mitchell: I shall not give way. I am keeping a close eye on the time.
That increase in unemployment will continue, because there is nothing in the Chancellor's Budget to tackle that major social and economic problem that besets the country. The Chancellor seems to think that recovery comes automatically with the decline of inflation. No other advanced industrial country seems to be obsessed with that. What is there, once inflation is reduced even to nil, to bring about the recovery that we all want? That recovery must be invested for, planned for, organised for, worked for and indeed deficit-financed for, because one has to produce to increase demand for the products of industry. Without that increase, there can be no recovery. Because the Chancellor is maintaining a deflationary stance, and once expenditure on unemployment is allowed for, one


sees that the right hon. Gentleman is taking a contractionary stance towards the economy. Thus there can be no genuine recovery.
What the Chancellor cites as recovery is essentially a candy-floss recovery that is going on in the high streets but not in the factories, in the shops but not in employment. It cannot happen in the those places, because the people are raiding their savings and taking advantage of the relaxation of credit to buy more, mainly imports. That can have no effect on output.
The recovery that we see cannot be sustained. The Chancellor has done nothing to sustain it by doing nothing about the fundamental problems of the economy. That is a tragedy which reduces the performance of the Budget, although we talk about its different aspects, essentially to moving deckchairs on the Titanic. I shall conclude with that thought, because I am anxious that my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) should start with a clean slate tomorrow and with the wisdom of having read my speech, for his edification and that of the House.

Debate adjourned—[Mr. Neubert.]

Debate to be resumed tomorrow

British Railways (No. 2) Bill (By Order)

Order for Second Reading read.

7 pm

Mr. Patrick McNair-Wilson: I beg to move, That the Bill be now read a Second time.
It is once again my pleasure to propose the Second Reading of a British Railways Bill. It follows in the well established pattern of Bills promoted by the British Railways Board to help to modernise the railway system and to ensure that the dynamic industry which British Rail is is given every opportunity to streamline its functions. Although the Bill deals with structural matters concerned with railway operation, it goes hand in hand with the wider issues of rail investment.
It is extremely encouraging to announce that the board now looks forward to an increase in investment between now and 1986 of 40 per cent.—£380 million—and that the services to the customers—the passengers and those who use the freight services—are also being improved. Great strides have been made to provide passengers with much more up-to-date information about train journeys. Forty-one new travel inquiry bureaux have been established at a cost of over £500,000, and a further 13 are currently being brought up to standard. If one adds to that the electrification of new lines and the building of new rolling stock, one sees that we can be justly proud of the pattern of activity within British Rail.
The Bill is divided into six parts and follows the normal pattern of such Bills. Part I contains the standard provisions: the incorporation of general Acts, many of which go back to the early part of last century when railway building was going on apace, and the application of part I of the Compulsory Purchase Act 1965.
Part II deals with the works which the Bill sets out and which hon. Members will no doubt have studied and seen explained in the explanatory memorandum. I should perhaps draw the attention of the House to one or two of those works because they are significant. Clause 5 deals with work No. 1 which involves the building of a new railway on the course of an old, discontinued line at Swinton in Yorkshire. That plan is similar in some respects to one which was envisaged by the south Yorkshire passenger transport executive in the past. As it is now considering reopening the Swinton station, I hope that the work will find general approval.
Work No. 2 concerns a line extension in Birmingham between Bordesley and the former Snow Hill station to provide a comparatively short length of track—about 452m—which will enable trains to pull clear of the platform and provide a stabling facility at the same time. Works Nos. 3 and 4 are simply bridge widening projects. Work No. 5 is again related to a piece of track. In the past there were two pieces of track at the Rufford colliery in Nottinghamshire, which were duplicating the activities of the system. They are now linked together to produce a more efficient and effective system. It will be a new chord railway.
Clauses 6 and 7 relate to works Nos. 1 and 2, to which I have just referred. Clauses 8 and 9 deal with bridge rebuilding. Clause 10 is the first contentious provision in the Bill. The hon. Member for Denton and Reddish (Mr.


Bennett), who was principally worried about the matter, is not in his place. The board seeks to stop up and divert certain crossings in east Sussex. The objection stems from the anxiety of the ramblers about the effect of that on the footpaths. These diversions are being considered because of the decision to electrify the Tonbridge-Hastings railway. Obviously that creates a hazard to pedestrians and others who try to cross the track. The board believes that the cost of providing the necessary platform to cross the third conductor rail—a live rail—would be excessive and, therefore, by the simple re-routing of the existing footpaths pedestrians will be able to continue with their leisure activities, whether rambling or otherwise. The board has further undertaken not to close the existing footpaths until the new diversions have been established, publicly opened and proper signposts have been put in place. I hope that those who have so far objected about the three crossings at Mountfield—Lot's Wood, High Hurst and Selmes Webbs—will see the logic of the board's proposals.
Clause 11 deals with matters with which hon. Members who have followed the progress of similar Bills over the years will be familiar—the alteration of the status of level crossings, and the closing of two level crossings, one at Wickford, Essex. I assure the House that the local police, ambulance and other services raise no objections to its closure. For the second crossing at Cattishall No. 15 in Bury St. Edmunds all authorised users have agreed to its closure.
Clauses 13 and 14 relate to the construction of new crossings at Fareham in Hampshire and at Oswestry in Shropshire.
Clause 15 is the next contentious provision. I shall deal with it as best I can because my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) has properly expressed anxiety at the plans which the board has put forward. The night-time closure of level crossings, and crossings in general, is only ever implemented after most careful and searching deliberations. The plan in clause 15 deals with the night-time closure of two crossings, both in Lincolnshire and in the constituency of my hon. Friend. One is at Holton Gate House and the other at Smithfield road and both are in the district of West Lindsey in Lincolnshire. Under the Bill the Holton Gate House crossing will be closed from 2300 hours until 0600 hours each day. That decision has been accepted. However, the Smithfield road crossing, which the Bill proposes to be closed between 2200 hours and 0600 hours each day, is a matter of some concern.
I must make it clear immediately that, although the manned crossing will be closed to vehicles, those on foot and horseback can pass unaffected. Lincolnshire county council and the National Farmers Union have no objection to the proposals, but West Lindsey district council and the Grasby, North Kelsey and South Kelsey parish councils object. Their objection is based upon the fear of a diminution in the public right of access and the effect that closure might have on access for emergency services. The board takes this matter seriously. Indeed, it was so concerned that a traffic census was taken at the crossing to clear up doubts about how much it was used. In a seven-day period last year, it was discovered that there was

traffic on only two days. On one day there were four cars and one motor cycle, and on another day there was only one motor cycle.
The board has considered all the objections put to it, which my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) has come to the House to explain to us. However, I must tell him that, since he has now visited the site and had an opportunity to examine the problem, the board, recognising his genuine concern, is happy to alter the timing of the closure to accord with that of the Holton Gatehouse crossing, so that it will close at 2300 hours each day. I hope that my hon. Friend will accept that change in the timing and will allow the clause to pass.
Part III of the Bill deals with the purchase of land for works and other purposes. Part IV deals with various protective provisions. Part V relates to a 200m limit of jurisdiction for Sealink in the river Stour at Parkeston quay.
Part VI deals with miscellaneous provisions. I should elaborate clause 31, which relates to the decision to extend the powers provided by section 54 of the British Transport Commission Act 1949 for constables of the British Transport Police to search and arrest employees of the board and those employed on the commission's property. Normally that extension of powers, which the House will understand is an inherited power, has led to five-year extensions, and the present extension will run out in 1985. The Police and Criminal Evidence Bill currently passing through Parliament enshrines the permanent powers provided in section 54. However, the Bill is not yet law, so clause 31, which extends the powers until 1 January 1988, is included in the Bill as a precaution. I am advised that when, as we hope, the Police and Criminal Evidence Bill becomes law, this power can be withdrawn.
The Bill is a modest measure compared with others which those of us who have followed the history of this legislation have seen in the past. It is, as can be seen by the fact that the Benches are largely empty tonight, not a contentious measure. I hope that I have been able to explain the broad outlines of what the Bill seeks to do, and if any hon. Members wish to raise points I shall try to answer them. I hope that, with that explanation, the House will give the Bill a Second Reading.

Mr. Edward Leigh: It was my objection which resulted in the Bill being opposed private business and which caused this debate. I do not object to the Bill as a whole. My constituents will be relieved to hear the comment of my hon. Friend the Member for New Forest (Mr. McNair-Wilson) that the Bill is concerned to improve investment in British Rail.
However, as my hon. Friend said, I was concerned about the night-time closure of Smithfield crossing in my constituency. I have received many representations during the past few months about the closure of that level crossing. As my hon. Friend said, I received representations from West Lindsey district council and from the parish councils of Grasby and North and South Kelsey. This may seem a parochial matter to debate in this august assembly, but it causes great concern to my constituents, who live in a rural area where access is often difficult. If Smithfield crossing is closed, some of my constituents will have to travel three miles out of their way to cross the railway line.
However, I appreciate British Rail's difficulties in manning the crossing. In answer to my hon. Friend's point about the census that was taken at the crossing, may I say that there is strong local feeling that if the crossing were better manned more people would use it. I do not intend to get into an argument about personalities on the Floor of the House, but my constituents have strong views on the matter. I felt so strongly about it that I was prepared to speak for a considerable time to talk out the Bill so that my constituents could see that their case had been adequately heard. However, I am not anxious to detain the House in that way. The hon. Member for West Bromwich, East (Mr. Snape) is here tonight. I have had the pleasure of listening to his speeches during our 80-hour consideration of the London Regional Transport Bill, but I would not wish him to have to listen to one of my speeches for as long as three hours.
Since my hon. Friend has made such a wise concession, which I am sure was a result of my representations, those of the local councils, and then a long site meeting between local residents and British Rail last Saturday, he will be delighted to hear, as will the House, that I withdraw my objection to the Bill.

Mr. Peter Snape: The House will be grateful to the hon. Member for New Forest (Mr. McNair-Wilson) for the comprehensive way in which he introduced this largely non-controversial measure. Normally in such debates we also enjoy a contribution from the hon. Gentleman's brother—the hon. Member for Newbury (Mr. McNair-Wilson)—and I hope that we shall continue to do so in future, because both hon. Members always make a valid contribution to our debates.
The hon. Member for Gainsborough and Horncastle (Mr. Leigh) will be relieved to know that my speech will be much shorter tonight than some of those that I made during the progress, if it can be called that, of the London Regional Transport Bill. I want to comment briefly on clause 5.
I join the hon. Member for New Forest in welcoming the proposals to reinstate the former Swinton curve between the Sheffield-Wakefield line and the Doncaster-Barnsley line, which I understand will reduce the journey time for north-east to south-west high-speed trains. That is most welcome.
I shall say a few words about the other part of clause 5, dealing with works in the Birmingham area. As the Minister knows, I have recently expressed some interest in the matter, because the area is not far from my constituency.
There is a long history to the proposal to include the works in the Bill. We are approving—I hope—proposals to reopen either a closed stretch of railway line or what is at present a closed station in Birmingham. I do not want to express controversial views on such a non-controversial Bill, but if minds had been a little more open some years ago there would have been no need for these proposals. Virtually since the closure of Snow Hill station in Birmingham strong feelings have been expressed by political groups and various other interested parties in and around the city that the reopening of the station would be desirable.
The latest attempt to bring that about arises from a TPP application which the West Midlands county council submitted to the Department of Transport last July,

specifically relating to this proposal. The West Midlands county council provided additional details of the proposal in October last year, and I, with two of my hon. Friends, submitted written questions about the future of the proposal earlier this year. Perhaps I might paraphrase the replies that I received to those questions.
I was told that the Department was submitting the scheme to further inspection and required further details from the West Midlands county council about exactly what was involved. However, some controversial statements were purported to have been made and appeared in the press in the Birmingham area in January this year. If f may paraphrase again, they said in effect that approval had been deferred because the scheme was not scheduled for completion until after 1986—that is, after the demise of the West Midlands county council. Subsequently, that allegation has been denied by the Department of Transport, and I accept that. However, the Department continues to believe that it needs more details about the scheme, and letters have been exchanged continually since the initial application.
As recently as 6 March this year, the county surveyor, who has overall responsibility for transport in the West Midlands, submitted this scheme among the other new starts for 1984–85. The scheme is third in the county council's list of priorities. Top of its list is a new bus station at Dudley. Second is the proposed Wolverhampton ring road. The third is this scheme, mentioned in clause 5, the rebuilding of Snow Hill station.
We are talking about an amount for grant of £244,000 in the financial year 1984–85, rising to £3·5 million in the following financial year. The overall total for the scheme will amount to £10 million.
One reason given by the Department for the delay in approving this scheme is the need to consult the district councils involved. The district council that immediately comes to mind, of course, is Birmingham city counci. As recently as this week, a letter was sent by the city planning officer to the director-general of the West Midlands county council. I have been given permission to quote extracts from the letter, although I have not seen it myself. The city planning officer's view of the scheme was that the
City has consistently supported the re-opening of Snow Hill station".
The letter went on to say:
The cross-city line"—
which is what will result, once Snow Hill station is rebuilt—
will be beneficial to the city centre".
I do not know whether the Department of Transport feels that the other district councils concerned have to be consulted on the matter. If we are to have joint boards—as yet, no one knows whether that is to be so—clearly they will have representatives of the other district councils. I am not authorised to speak on their behalf, but the fact that the sponsoring body, the West Midlands county council, is so strongly in favour of the redevelopment of Snow Hill station, and that the city council itself, which is under a different political control from the county council, has itself expressed strong support for the scheme, shows the depth of feeling that exists in the area. I do not expect a yea or a nay from the Under-Secretary now, but I hope that he will bear those views in mind.
Only yesterday, I understand, the West Midlands county council submitted an application under the


European regional development fund for finance towards the Snow Hill scheme. The county council realises that any finance granted would count against any capital allowances, but it is nevertheless anxious to pursue this scheme. It is true, of course, that the county council does not need Government permission to go ahead with the scheme, but clearly, to qualify for grant, such permission would be necessary.
I hope, therefore, that I have illustrated the depth of feeling that exists in the area about this scheme. I warmly welcome the Bill, but I ask the Minister to remember that a considerable number of years have already gone by since the proposal to reopen Snow Hill was first mooted and that any further delay will inevitably lead to higher costs in the future.

The Under-Secretary of State for Transport (Mr. David Mitchell): My hon. Friend the Member for New Forest (Mr. McNair-Wilson) has assisted British Rail, not for the first time, and rightly spoke of the way in which British Rail is improving, and the changes that it is bringing about. In doing so, he demonstrates his personal insight into the way the railway system is changing and meeting the challenge of our time, as well as his interest in the railways.
It may help if I intervene now to give a brief outline of the Government's view of the Bill. The Government have considered its content, and have no objection in principle to the powers sought by the British Railways Board.
A number of points have been raised during the debate which it may be appropriate to consider in Committee. My hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) has referred to the night-time crossing at Smithfield road level crossing, and the timing of its closure. I understand that he is now satisfied with the changes that have been made to meet the points put forward so vigorously by him as the local Member of Parliament on behalf of his constituents.
The hon. Member for West Bromwich, East (Mr. Snape) welcomed a number of the works. He did his best not to become controversial, but he obviously found it difficult. He referred to the Snow Hill service. I know that he will not expect me to comment on that this evening. He will know that the expenditure concerned runs for more than one financial year. It is important to know the degree of priority, along with many other attractive propositions that the passenger transport authority views for the scheme, since it would be imprudent to agree support for it for one year without knowing the extent to which the

PTA would wish to see it supported as a top priority in subsequent years, in competition with various other opportunities for transport grant.
A petition has been deposited by the Ramblers Association. However, the petitioners will be able to present their case in Committee. I therefore recommend to the House that the Bill be given a Second Reading, and allowed to proceed in the usual way to Committee, where its provisions can be considered in greater detail.

Mr. Patrick McNair-Wilson: Before I reply to the points that have been raised, I thank my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) for accepting the concession which I outlined relating to the crossing in his constituency. I congratulate him, as did the Minister, on his determined representations leading to this change, which I hope will be satisfactory to his constituents, particularly those who use this crossing.
I also thank the hon. Member for West Bromwich, East (Mr. Snape) for his kind remarks about my brother, the Member for Newbury (Mr. McNair-Wilson). I will pass those remarks on to him when I next see him, and I know that he will appreciate them very much.
The hon. Gentleman welcomed the broad provisions of the Bill, and I thank him for that. I should like to add a word about his comments on the works at Snow Hill. I wish to make it clear that the works covered in clause 5 will not in any way prejudice the restoration of the railway on to Handsworth and Smethwick East. The hon. Gentleman will know that, for a long time, one of the major obstacles to development has been the uncertainty over Snow Hill station. He will also know, I am sure, that, now that proposals for a mixed development exist on the site, including bus-rail interchange facilities, which have been agreed between the board and the Birmingham city council, there is every possibility that the development will go ahead. Stage one will be the restoration of the railway between Bordesley and Snow Hill, in conjunction with the commercial development of the Snow Hill site. Stage two will be the restoration of the railway northwards from Snow Hill.
I recognise the real interest in this development, and I hope that the provisions in the Bill will help to give it a fresh impetus. I thank the hon. Gentleman for giving his welcome to the proposals outlined.
With those explanations of the points that have been raised, I thank my hon. Friend the Minister for his support, and I hope that the Bill will now be able to go forward to be examined by the Examiners.

Question put and agreed to.

Read a Second time and referred to the Examiners of Petitions for Private Bills.

Wytch Farm Oilfield

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Thompson.]

Mr. Geoffrey Lofthouse: I am grateful to have the privilege to speak in this Adjournment debate, and to present what I believe is a scandal arising out of a Government decision.
First, I wish to inform the House that, as a member of the Select Committee on Energy, I received papers yesterday from the British Gas Corporation, arising out of the request from the Chairman of the Select Committee for answers to certain questions. I wish to give the House the categorical assurance that, knowing full well that I was to speak in this Adjournment debate, I have not looked at the papers that were sent to members of the Select Committee yesterday, although the envelope is in my possession.
I have always condemned the Government's decision and, indeed, their policy in selling off assets belonging to the people of this country. The instruction to the British Gas Corporation to do just that with its share in the Wytch farm oilfield was in my view an appalling decision. If the sale goes through, it will rob the British people of assets of over £200 million. While that is bad enough, the serious question that arises concerns the legalities of the instructions given by the then Secretary of State to sell the oilfield off to a certain bidder at a certain price.
Arising out of the Attorney-General's repeated refusal to answer the questions of hon. Members, there has been no alternative but to seek—as we have done, and in which we have been successful—an Adjournment debate.
There is a curious history to the transaction, which has been imminent for a very long time.

Mr. Tam Dalyell: Before my hon. Friend deals with the history, I believe that he is referring to the answers that were given by the Attorney-General at the last Attorney-General's question time, following a substantive question by me, which followed a substantive question three weeks earlier by my right hon. Friend the Shadow Attorney-General. Will my hon. Friend accept that, although technically the Attorney-General may be right, given all the circumstances of Wytch farm, and the promises that were made during the consideration of the Oil and Gas (Enterprise) Bill, those of us who were on the Committee will remember very well the undertakings that were given? In the spirit of that Committee stage, it is unsatisfactory for the Attorney-General to shelter behind the internal workings of Government, and it behoves him to be much franker.

Mr. Lofthouse: I share my hon. Friend's views. If the Attorney-General had been more forthcoming, it might well have been unnecessary to initiate this Adjournment debate.
The history of the matter is very curious. The transaction, which has been imminent for so long, and which may be about to be concluded, is very interesting. Various estimates have been made of the value of this asset, but the true economic value of the shares appears to be approximately £400 million. The Government are certainly anxious to dispose of this valuable asset, but I understand that the corporation has not shown the same enthusiasm. After some years of consideration, however,

the corporation may be about to comply with the Government's wishes despite its belief that it is being made to sell at a price substantially below what it regards as the value of the assets. The question for the corporation is whether it is protected in law for what it is about to do. I hope and assume that the House would wish to ascertain whether that is so.
In October 1981 the then Secretary of State for Energy directed the corporation to dispose of its interest in Wytch farm under section 7(2) of the Gas Act 1972. The order setting out the direction was debated in Parliament and approved.
In March 1983 the Secretary of State for Energy instructed the corporation that the Government considered it both commercially justifiable and in the national interest for the corporation, in the light of offers received, to take forward negotiations with the Dorset group of oil companies, and instructed the corporation to proceed accordingly. I understand that at that time the Dorset group was the highest bidder. One may argue about whether the highest bid represents the market value, but I am not just talking about market value. I am talking about the true economic value of the shares.
An instruction of that kind rather than a statutory direction is an unknown animal in this part of the statute book. Why did the Secretary of State give an instruction apparently without the force of law behind him when he could have issued a more detailed direction under the Oil and Gas (Enterprise) Act 1982 which by then had come into effect? He seems either to have forgotten that or to have been unhappy about those statutory powers, which might have given him aid—or perhaps it was because the second direction would have had to be drafted properly according to the statute and debated in Parliament.
It was easier to take the chairman of the board on one side and twist his arm so that the board would undertake to do as the Minister told him, but can the board be happy about that unless the Government find a way to absolve the board? The board may find itself in considerable difficulty and in breach of its statutory duties. To protect their personal position, the members of the board are entitled to a proper direction from the Government or to be absolved in some way if their position is found wanting by the courts.
Against that background and the way in which these matters have been handled, it is difficult to see consistency in the Government's professed respect for law and order. The Conservatives claim to be the party of law and order and to stick to the rules. They never fail to refer to actions on picket lines and rightly try to get Opposition Members to associate themselves with their position. I share that view, but the Government cannot preach law and order in one respect if they are not prepared to stand by the law in another, and it seems clear that in this instance they have failed to do so. If the Government were confident that their instruction was within the framework of the law, the Attorney-General should have found no difficulty in saying so to my hon. Friend the Member for Linlithgow (Mr. Dalyell).
The problem for the British Gas Corporation now is whether the sale, if completed, can be held to arise out of an unlawful instruction and, if so, who will carry the can. Will it be the corporation for carrying out the instruction which the Secretary of State had no statutory power to make, or will it be the Secretary of State himself? As I have said, I understand that the sale is imminent.


Therefore, I respectfully suggest to the Minister of State today that the Government will be failing in their duty if they do not stop the sale.

Mr. Dalyell: It may be asked why some of us are too impatient to wait until Sir Denis Rooke has given his evidence to the Select Committee on Energy. It is precisely because Select Committees by their nature take time and because the sale is imminent that we look forward very much to the Minister's answer today. If I may say so, Mr. Speaker, I hope that as we have some time in hand some of the rest of us may be allowed to have a say after the Minister has spoken.

Mr. Lofthouse: I am not in a position to know whether the Select Committee will decide to take evidence on that aspect, although I hope that it will do so. I believe, however, that the position is so serious that if we cannot get assurances from the Minister of State today he has an obligation to the House by virtue of the position that he holds to stop the sale at least until the Select Committee has decided whether to take such evidence and, if it decides to do so, until it has reported. I see no ground for any Government or any reasonable Minister to refuse such an application.
If the Government encourage the selling off of the country's assets at under 50 per cent. of their true economic value, their policy can only be the doctrinaire view that privatisation should be carried out at any cost. If that is so, let the Government say so and let the people of this country decide whether they share that view. It is a scandal that in the same period of time the same person—the former Secretary of State for Energy, now Chancellor of the Exchequer—can be instructed to give away the country's assests to the tune of £220 million while at the same time instructing the chairman of the gas and electricity authorities, without any statutory power to do so, to increase gas and electricity prices.
I am not a great legal mind, but I believe that the Secretary of State has no statutory powers to give such instructions to the chairman of a nationalised industry either to increase prices or to sell off assets. His only power is the threat hanging over the heads of the chairman of nationalised industries that if they do not carry out the Government's instructions they will be kicked out. That is his only possible lever. I should hope that people in such powerful positions would be big enough and brave enough to resist such instructions when they know full well that the person making them has no statutory power so to do.
Will the Minister of State confirm whether the instruction by the Secretary of State in March 1983 to sell off these shares was legal? Had he the legal powers to do that? If not, who would take the responsibility for selling off something outside the law? Will he agree that the sale of the British Gas Corporation share in Wytch farm oilfield will not take place until the legal position is clear and the Select Committee on Energy has at least had an opportunity of examining the matter, and that if the Committee decides to do so the Government will wait until it has taken evidence?

The Minister of State, Department of Energy (Mr. Alick Buchanan-Smith): I am grateful for the opportunity to debate this subject in the House. It is certainly important

and I am very glad of the chance to put the record straight on a number of the issues which the hon. Member for Pontefract and Castleford (Mr. Lofthouse) raised. However, the kind of language which he used in the early part of his speech, describing this matter as a scandal and robbing the people, is quite out of place in relation to the subject itself, to what has taken place and to what I shall be saying in this debate.
Listening to the hon. Gentleman, I began to wonder what new information he would bring before the House which it had not had already. I feel that to some extent we were treated to a replay of some of the debates we have had previously regarding the general issue of privatisation. The principle of this issue has been debated at length in the House on a number of occasions, and the Government's policy is absolutely clear on it.

Mr. Lofthouse: The right hon. Gentleman will recollect that I made it clear that, if we had been able to get answers on the legality question from the Attorney-General, I probably would not have initiated this Adjournment debate tonight.

Mr. Buchanan-Smith: I am grateful to the hon. Gentleman for clarifying that point. I hope that later I shall give him further clarification.
By way of background, may I say that, although I know that the hon. Gentleman does not agree with me on this, I think he understands the generality of the Government's case in relation to the sale of these assets, which simply stems from our belief that there are certain activities, of which the oil production activity of the British Gas Corporation is one, which it is not appropriate for such an organisation to carry out and which are better carried out by the private sector.
I certainly do not mean to belittle the achievements of the British Gas Corporation or its staff in regard to oil production. I know from my experience in recent months that there are few corporations, private or public, which could have achieved with such skill the switch to North sea gas carried out so successfully by the British Gas Corporation. I pay tribute to the corporation for its skill and professionalism in appraising and developing the Wytch farm field. It has been a job well done and the policy decision which the Government have taken is no reflection on the corporation's conduct or ability to develop that asset.
The question remains, however, whether there is a better way to run those parts of the industry which could survive and prosper in a freely competitive situation. I would find it difficult to find a clearer example than the oil industry of an industry which should be in the private sector. Indeed, we are the only major industrialised Western country in which such a significant amount of natural resources have been held in the public sector. I believe that that is of significance.
We have already taken a number of significant steps in the direction of returning nationalised oil assets to the private sector—for example, the successful flotation of the majority shareholding in Britoil. We are also proceeding now with our preparations to create the new British venture based on British Gas's former North Sea interests, Enterprise Oil.
The Wytch farm sale is another facet of that same policy, and it is entirely consistent with our fundamental policy objectives. It is unavoidable, of course, that from


time to time British Gas will strike oil in its search for gas both on shore and off shore. I certainly do not question in any way the corporation's motives or competence. I believe, however, that it is in the interests of no one, including the corporation, for it to become involved in owning and operating oilfields. Indeed, it is difficult to see any reason why a publicly owned gas utility, whose main statutory duty is, as one would expect, to supply gas to consumers as economically as possible, should devote its energies and resources to fringe activities such as developing and operating an on-shore oilfield, particularly when this task could more easily and more naturally be carried out by the private sector.
It is not unfair to say that this is something with which the last Labour Government were not totally out of sympathy. For particular purposes they sold off a certain amount of BP shares. Perhaps even more interestingly, they took powers under section 12 of the Petroleum and Submarine Pipe-Lines Act 1975 to transfer the oil interests of the Gas Corporation to BNOC. Since they took those powers, clearly even they found it questionable whether British Gas should be involved in oil exploration and development on the scale which it then was.
I make no apology for dwelling on these background points because it is important in a debate such as this to set our policy in context because some of the policy may not necessarily conflict with what I divine to be the intentions of the previous Labour Government as embodied in their legislation.
The hon. Gentleman asked me a number of questions about the current position in relation to the sale, and I am very happy to deal with that. As the House knows, the Government's intention to initiate a sale of British Gas's 50 per cent. interest in what is known as PL.089, which includes the Wytch farm field, was announced as long ago as the summer of 1981. The then Secretary of State for Energy, my right hon. Friend the Member for Guildford (Mr. Howell), laid before Parliament a draft direction under section 7 of the Gas Act 1972, which required the corporation to dispose of its interests in the licence on 26 June of that year.
On 27 July a motion to disapprove the direction failed to find favour with this House, and the direction entered into force on 13 October 1981. That, of course, is the basis of the legality of the sale of Wytch farm.
One of the main points which the hon. Gentleman raised concerned the legality of the instruction which my right hon. Friend the then Secretary of State—now the Chancellor of the Exchequer—gave to the British Gas Corporation on 30 March 1983. There should be no confusion. That was an instruction and, as such, it is not legally binding. I am sure that the BGC will make its view clear when it gives evidence to the Select Committee. My understanding is that the BGC is aware that the instruction is not legally binding and that it would not be illegal to conclude a sale at a price below the BGC's view of its economic value, provided that it was of the opinion that that was a reasonable course of action in all the circumstances.

Mr. Dalyell: Am I right in interpreting the Minister's remarks as meaning that no final decision will be made until the due processes of the Select Committee have been gone through and that no irrevocable steps will be taken until the Committee has done its work?

Mr. Buchanan-Smith: That is not what I said. I shall deal with the timetable in a moment. We halve still to receive the final proposal from the BGC. The matter is still under consideration. I and my predecessor have told the House that when that conclusion is reached it will be reported to the House. We do not know how that will fit into the Select Committee's timetable. It must take its own decisions. Consideration is well advanced, but I do not know when the Committee and the BGC will submit their conclusions to my right hon. Friend. I hope that I have made that clear.
Presumably the view of the BGC will be available to the Select Committee. Indeed, the hon. Member for Pontefract and Castleford implied that that is already available, although, properly and fairly, he did not use it. I repeat that it would not be illegal for the BGC to conclude a sale at a price below its view of the economic value so long as it was of the opinion that to do so was reasonable in all the circumstances. I understand that that is the BGC's view. I accept that the hon. Gentleman may wish to see a different course of action flowing from it.

Mr. Lofthouse: Will the right hon. Gentleman clear up one point? He has conceded that the Secretary of State has no legal powers to instruct the BGC to sell its shares in the oilfield. Why, if there are no statutory powers to enforce it, is the oilfield being sold when the BGC does not want to sell it?

Mr. Buchanan-Smith: The BGC, knowing the legal situation, decided to act on that instruction. I have spelt out the BGC's view and perhaps the hon. Gentleman will read carefully what I have said. There is no question of the Government or the BGC doing anything illegal and nothing has taken place that we believe to be illegal. The hon. Gentleman said that the instruction had been given illegally, but there is a significant difference between that and saying that the instruction is not legally binding. I am endeavouring to be helpful. I am not trying to cloud the issue. I hope that when the hon. Gentleman reads what I have said his understanding will be clearer, because I have spoken advisedly.
The BGC has to make its own decision on what it believes is a reasonable course of action in all the circumstances and on the value. As far as I am aware, it has not yet reached that conclusion, but as soon as it does it will undoubtedly convey that view to my right hon. Friend and we shall, if necessary, continue discussions and then report the conclusions to the House as we have promised. We have no intention of ducking that undertaking which I have already freely given.
The hon. Gentleman referred to valuations which formed one of the reasons for the debate tonight. As the hon. Gentleman knows, the sale was conducted by the BGC. The Government accepted its advice that the sale should be carried out by means of an open tender to the oil companies. The BGC felt that that was the best way to ensure that a proper price was achieved which the Government have always made clear was an essential element in the successful conclusion of the sale. Once the necessary preparation for the sale had been made, BGC invited tenders, in July 1982. Several bids were received and the auction process went through several rounds. The BGC and the Government agreed that the best bid was that made by the Dorset consortium of five independent British companies.
As my right hon. Friend the Chancellor of the Exchequer made clear in May last year when he was Secretary of State for Energy, British Petroleum, which owns 50 per cent. of the licence interest, said that it did not intend to exercise its right to match the Dorset group's bid. That fact, together with the tendering process, hardly suggests that the Dorset offer was below market value or that the assets in question were being sold off at a knockdown price. It is clear that the market was thoroughly tested. The hon. Gentleman fairly made the point that he was interested not only in that but in whether the assets had been properly valued by the market. The real value of the assets is a slightly more difficult area of debate, but I believe that in our society and economy the testing of the market is the proper way to deal with the matter.

Mr. Dalyell: Will the Minister give a reference for his quotation from remarks by the Chancellor of the Exchequer when he was Secretary of State for Energy?

Mr. Buchanan-Smith: I cannot give the Hansard reference, but my right hon. Friend informed the House of the British Petroleum decision on 9 May 1983.

Mr. Dalyell: The right hon. Gentleman appears to have given different impressions at various times. He gave a different view in Committee from the view that he gave from the Dispatch Box. That is why I have asked for the reference.

Mr. Buchanan-Smith: I hope that the information that I have given the hon. Gentleman will help him to check the facts. I was not in the Department at that time. I have checked the record throughly, and I believe matters to be absolutely clear.
The hon. Member for Pontefract and Castleford asked whether the market had been sufficiently tested. I believe that it was tested properly, for the two major reasons that I mentioned earlier—the tender procedure with the different rounds that occurred and the fact that British Petroleum did not seek to match the bid, which it had the right to do.
There is a question whether the valuation is relevant or properly related to what the hon. Gentleman and others may feel is a proper valuation of the assets. I cannot enter into that matter in great detail tonight. Obviously the corporation will express a view. The Select Committee might cross-examine the corporation if it chooses to take matters further. I counsel a certain amount of caution. The hon. Gentleman spoke of a knockdown price and of instructions for sale at a certain price to a certain bidder. It is not quite as clear cut as that. He mentioned a value of £400 million. No doubt the matter will be open to further scrutiny.
I assure the hon. Gentleman that I am not trying to duck my responsibilities. Until I have the final conclusions from the corporation it would be wrong to comment in detail. Nevertheless, one significant factor is the valuation put on the assets by Wood Mackenzie and Company, a well-known firm of stockbrokers. It is generally accepted in the House and in the oil industry as having a well informed and authoritative view on such matters. In February of this year it produced a paper that analysed the position at Wytch farm. It is the most up-to-date published

independent valuation. It makes a valuation at a 10 per cent. discount rate—much depends on the discount rate applied to a valuation—of £165·5 million.
I am not founding anything on that. The hon. Gentleman mentioned a certain figure, and I am also mentioning a certain figure—one that has come from an extremely authoritative source based on certain assumptions. I commend the paper to the hon. Gentleman. The firm has no direct interest in the matter. It is acknowledged that the company gives an objective analysis of oil matters. Many of the figures that are bandied about are based on hypothesis, which is dangerous. I shall not enter into the game of comparing one figure with another. The time to do that will be when we have the final recommendations and conclusions from the British Gas Corporation. I give that figure only to put the matter into perspective.
The BGC went through the process of tendering and a number of rounds of biddings. As the result of that, both the corporation and the Government agreed that the best bid came from the Dorset bidding group. At that stage the bid was only in an outline form and it was not possible to form a final view. The Government concluded that the offer was sufficiently attractive to merit detailed negotiations with a view to completion of the sale. It is no secret that, although the bid was clearly the best available from the market, the BGC felt that it was not sufficiently attractive. Against that background, my right hon. Friend the then Secretary of State for Energy told the corporation that the Government felt that it would be commercially justifiable and in the national interest to proceed. I have already described to the House what I understand to be the corporation's legal view of where it stands on that matter.
Resulting negotiations have, as we all know, proved to be fairly long and complex. It is only recently that the last remaining details have been sorted out and the final versions of the necessary various agreements been produced. As I have already said, I understand that the BGC has yet to reach a final view on the deal that has emerged from these deliberations. It has not formally remitted the details of the transaction to the Government, together with any advice that it might wish to give. It is entitled—and we would expect it—to present its views to the Government. That is why I cannot say what will happen.
Hon. Members will understand that the Government must consider all the aspects of the sale, including any impact resulting from the Budget changes announced today, before we reach any final conclusion. It would be wrong for me, in my position of responsibility, finally to make up my mind before I am in possession of the full facts. However, no one should take that responsible attitude as a sign of any weakening of our commitment to carry through our policy. We intend to proceed to a sale. However, that must rightly depend on the final conclusion of the BGC and the views that it expresses. I wish to make it absolutely clear that the Government still believe that the sale should go ahead. I say that in direct reply to the hon. Gentleman's direct question.
I hope that I have dealt not only with the general background but with some of the narrative—which is important. The hon. Gentleman has given us an opportunity to focus our attention on the issue. I hope that I have clarified the legal position that he mentioned, and also the position of the valuation. I commend the Government's policy to the House. The sale of the BGC interest in Wytch farm will reduce the size of the public


sector and the effect that it has on the public sector borrowing requirement—both of which are correct, proper and important economic policy aims.
It is even more important that we are taking an important step forward towards our aim of opening nationalised industries to private capital and increasing competition in both the public and private sectors. I believe that this will be achieved without damaging the development of the gas industry or the interests of gas consumers. Indeed, the Government expect both the gas industry and gas consumers to benefit from the implementation of their general policy, of which the development we are discussing is but a small part. The House has been kept informed at all stages. The essential and original legal processes were debated in the House, and that is the basis on which we have proceeded. A judgment on valuation can be made when we receive the conclusions of the British Gas Corporation. If the Select Committee decides to proceed to a further inquiry, the Government will pay attention to anything that it may say.
When the Select Committee has wished to act swiftly in considering any issue, it has shown itself capable of doing so, and it has done so in recent weeks. I have no doubt that it will form its own opinion once it has considered the papers from my Department and the corporation.

Mr. Lofthouse: Can the Minister give an assurance that if the corporation decides on the basis of a commercial judgment that it does not want to continue the negotiations leading to a sale it will not be subject to pressure from the Government to go ahead with the proposed sale?

Mr. Buchanan-Smith: I cannot give an undertaking on such a hypothetical circumstance. If the corporation took such a view, it would be necessary to know its reasons for arriving at it. The central and most important issue is still to be presented to my right hon. Friend the Secretary of State and myself by the corporation, but over the past seven or eight months my right hon. Friend and I have had regular discussions with the corporation on several smaller but complex issues that have arisen during the negotiations. We have managed to resolve the problems as we have gone along. I should be happy if the corporation were to speak for itself, but I believe that the smaller issues have been dealt with amicably, sensibly, and constructively. I do not wish to prejudice the final stage of the negotiations by saying that in one set of circumstances we would do one thing and that in another set we would do something else. I believe that at the final stage we can bring matters to a satisfactory and positive conclusion.
Once again, I thank the hon. Member for Pontefract and Castleford for raising this issue on the Adjournment debate. I hope that I have been positive and constructive in my response so that he understands where matters stand. I shall consider seriously what he has said in what I hope are the final stages of the negotiations.

Mr. Tam Dalyell: The House owes a debt of gratitude to my hon. Friend the Member for Pontefract and Castleford (Mr. Lofthouse) for raising this issue at such a timely stage so that it is not too late, even at the eleventh hour, to take a different course.
I listened to the Minister of State with considerable care. I chose not to contribute to the debate before he

replied as I wanted to hear precisely the argument that he chose to deploy. As always, the right hon. Gentleman was courteous and civil. He was a great deal more courteous and civil than the former Secretary of State for Energy the Chancellor of the Exchequer, when he was taking the Oil and Gas (Enterprise) Bill through Committee.
It may be thought that I have no direct constituency interest in the issue in question. However, I have a vested interest of the mind because, along with my right hon. Friend the Member for Morley and Leeds, South (Mr. Rees), my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) and a number of other colleagues, I spent many hours in Committee Room 11 discussing this and related issues. Once one has invested so much time and energy in a particular subject, the matter becomes a sustained issue.
The Minister and I have been colleagues for nearly 20 years as Scottish Members. He is one of a decreasing number of Ministers who cares about the informed opinions of his parliamentary colleagues and about the House of Commons. Therefore, I do not understand why he cannot say that no irrevocable step will be taken until the Select Committee has reported.
The Select Committee on Energy, on which I do not have the privilege to serve, comprises a number of serious and distinguished colleagues who will not arrive at a view lightly. It is something of an insult to them that the Minister is unable to say, "We shall wait until you have reported, provided that the time taken is within reason." I think that I have the assent of my hon. Friend the Member for Pontefract and Castleford in saying that there would be no unnecessary procrastination on the part of the Select Committee. I am sure that it would tackle the issue seriously and with dispatch. In any event, the Conservative majority on the Select Committee would not allow any delaying tactics.
Why cannot the Minister say clearly, as I am sure would be his personal wish, "Of course we shall wait until the Select Committee has heard Sir Denis Rooke's evidence and the evidence of others involved and has come to a conclusion"? Those of us who have listened attentively to the Minister are still not clear about the difficulties that would be caused by waiting for the Select Committee's report. I shall, of course, allow the Minister to intervene if he is able to put my fears at rest.

Mr. Buchanan-Smith: The Select Committee has invited answers to a number of questions from my Department, from my right hon. Friend the Secretary of State and from the corporation. It has not decided yet whether it will investigate those matters. I understand that the evidence is already in the hands of the Committee. The hon. Gentleman's overtures have, as always, been made reasonably and constructively, but we do not know whether the Select Committee will carry out a further investigation. It may be that it will not do so. A conclusion has not been reached, but if the Select Committee quickly submits a view my right hon. Friend will clearly pay attention to the views of the House as expressed by the Committee.

Mr. Dalyell: rose—

Mr. Lofthouse: rose—

Mr. Dalyell: I give way to my hon. Friend the Member for Pontefract and Castleford.

Mr. Lofthouse: I have already said that the Select Committee has not yet decided what will be its next investigation. However, it will meet tomorrow morning to decide on what issue it will next take evidence.

Mr. Dalyell: It is not right to discuss the business of private meetings, nor shall I do so, of groups within the House. However, I understood that Sir Denis Rooke had told a number of us that he was submitting evidence. It was on that ground that it was thought right not to press him too hard. Sir Denis behaved perfectly properly and I understood that he was submitting evidence.

Mr. Lofthouse: Sir Denis was submitting evidence on the request of the Chairman of the Select Committee to answer certain specific questions. That is the evidence to which Sir Denis referred. I understand that he has submitted that evidence.

Mr. Dalyell: Until these matters are considered, I hope that the Minister will take on board the feelings of a number of hon. Members.
The second question is about the reserves. I understand that the Wood Mackenzie report, published in February, is based on data that became available last year. It is said that the reserves in the Wytch farm complex—for that is what it is—are in fact markedly greater than 160·5 million, and that the latest geological survey reveals considerable supplies of gas or oil at a much deeper level than has hitherto been thought to exist in Dorset.
Do the Government have any information about the reserves being significantly larger in this area than was thought at the time when the data were collected for the Wood Mackenzie assessment?

Mr. Buchanan-Smith: I cannot answer the hon. Gentleman's point specifically, but I assure him that before we or the British Gas Corporation come to a conclusion on this matter we will look at the most recent credible data. All the data are available to us and we will consider the decision in the light of them.

Mr. Dalyell: That is a most useful assurance.
There is then the question of precedent. Many of us feel that if we simply allow the Wytch farm argument to go by default we shall be setting a precedent for the other onshore discoveries that we hope will be made. One's experience in this House is that sometimes matters that looked fairly simple—for example, one thinks of Amersham International—turn out to be far more complex and far more detrimental to the long-term interests of the Treasury and the public purse than they appeared at first glance.
The Minister complained that my hon. Friend used the phrase, "robbing the people". But in this case the Government are selling off public assets—and how. My hon. Friend is not the only one who is using the phrase, "robbing the people". It is widely thought that, with their privatisation plans, the Government are selling the silver to meet the household needs of the moment.
We are concerned about the long-term assets of the country, and my hon. Friend's use of the word "scandal" is potentially proper. Until we have more information, I myself would hesitate to use that word but, potentially, that is what we are discussing.
The Minister went on to say that he thought that the British Gas Corporation was not fit to carry out these procedures.

Mr. Buchanan-Smith: indicated dissent.

Mr. Dalyell: Before the hon. Gentleman interrupts me, I admit that he then went on to praise the competence of the corporation. I would like to know how he substantiates the use of that word—

Mr. Buchanan-Smith: I doubt whether I used the words "not fit". If I had done so, I would not have praised the corporation. What I think I said—and what I meant to say—was that I did not think it appropriate for the British Gas Corporation to carry out work in the oil area.

Mr. Dalyell: I believe that Hansard will record that the word "fit" was used, but I accept the Minister's explanation. I accept that—in circumstances that made many of us extremely uncomfortable—the Labour Government sold off shares in British Petroleum. However, that Government did not sell off control, and that made a great difference. I am not persuaded that there is a parallel between the actions of the Labour Government in relation to BP—not that I approved of them—and what is now proposed.
I should like to ask the Minister some specific questions. Is the Minister confident of the legality of his predecessor's instruction to the British Gas Corporation urging the corporation to sell Wytch Farm to the Dorset bidding group? The Minister will say that he answered that question in his reply.

Mr. Buchanan-Smith: indicated assent.

Mr. Dalyell: The Minister nods his head, but it was not clear to me that he was certain of the legality of that instruction. Is he certain? The Minister is usually most cooperative.
When one turns up a stone, creepy-crawly things may come out. I was not persuaded that the answer to that question was yes. I believe that the Department of Energy is not quite sure of the legality of what is happening. I can only assume from the Minister's silence that the Department is not sure of its legal ground.

Mr. Buchanan-Smith: At the risk of prolonging the debate, I must say that I thought that I had made the position clear. The British Gas Corporation had a clear understanding of the legal basis of that instruction.
I used my words with great care. I made the great distinction that my right hon. Friend's instruction was not legally binding. The British Gas Corporation chose to act on it, and may have some comments on it when we come to a conclusion. My words were clear, and I used them carefully and advisedly.

Mr. Dalyell: The Minister has not answered my equally careful question. Is he confident of the legality of the instruction of his predecessor to the British Gas Corporation urging it to sell Wytch farm? I suspect that the Minister's words are well chosen in the sense that they are ambiguous, and that the Department is not sure what a court ruling would be.

Mr. Lofthouse: That is right.

Mr. Dalyell: I had my suspicions when my right hon. and learned Friend the Member for Aberavon (Mr. Morris) put the first question to the Attorney-General. I followed up his question three weeks later. We would not have put down questions to the Attorney-General if we had not wanted to find out about this subject.
The Department's lawyers are careful. I do not think that they are persuaded of the legality of what they are being asked to do. We must pursue this point, because it has emerged clearly from this debate that the Department's lawyers are not persuaded of the legality of what is happening. If they were, the Minister would give a confident answer at the Dispatch Box. It is now on record that he has not done so.

Mr. Buchanan-Smith: The hon. Gentleman is trying to twist what I said. Neither my right hon. Friend nor I claimed that the issue was legally binding. My right hon. Friend told the corporation at the time that it was the Government's view that it would be in the national interest and commercially viable for it to proceed with the negotiations. On that basis, the corporation undertook to do so. The Government have never claimed that their request carried legal force.
The hon. Gentleman is well aware that Ministers often urge industries to follow a particular course of action in the national interest. It would be absurd if every discussion with an industry had to take the form of a legally binding direction. The Government gave an instruction, as they were entitled to do, on the basis of which the corporation acted, no doubt having taken advice. On this matter the Select Committee has asked the corporation questions. I have already stated clearly what I understand to be the corporation's view. No doubt it will make that view clear to the Select Committee as requested.

Mr. Dalyell: We have a difficulty here. I raised this point with my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) who is a Queen's counsel and now the shadow Employment Secretary. I do not want to put words into my right hon. and learned Friend's mouth, but the gist of what he told me is that when he was a junior Minister at the Department of Energy officials occasionally raised the issue of instructions but never brought it to a head because it is a grey area. The obvious question that I must ask is, if the instructions are not legally binding, what happens if Sir Denis Rooke says that they are against the interests of the corporation? What happens if he objects to the break-up of that efficient organisation? I am not saying that he will say that—I cannot speak for him—but the question is reasonable.
If the Minister says that the instructions are not legally binding, is it not open to the chairman of the British Gas Corporation to ask why he should go ahead against his judgment after many years experience in the industry? We are talking of a man who has been in the gas industry for more than 40 years. He was a distinguished gas engineer who made his name during a crisis in the industry by fixing an accident in the east of London. In that way he came to the attention of the chiefs of the gas industry. He has extremely deep roots in his industry. If he says that, in the light of his experience, he judges that it is against the interests of the industry that he has served all his life and loves to go ahead and break up an efficient set-up, why should he be told, "You must do it", if it is not legally binding? I think that the Government are in great difficulty. I suspect that the Minister's answers will be read by the members of the Select Committee. I do not see where the power comes from to force the corporation to do things that are against its better judgment. I see that my hon. Friend the Member for Pontefract and Castleford nods in agreement and that the Minister is beginning to look a little uncomfortable.

Mr. Buchanan-Smith: The hon. Gentleman would have done better to listen to what I said.

Mr. Dalyell: I listened carefully.

Mr. Buchanan-Smith: I do not think that the hon. Gentleman did listen, because I made it clear that my understanding is that the British Gas Corporation accepts that it would not be illegal for it to conclude a sale at a price that it regarded as below the economic value, as long as the corporation believed that that was a reasonable course of action in all the circumstances. I have therefore already answered the question that the hon. Gentleman is now trying to put.

Mr. Dalyell: The Minister has not answered the following question—wherein lies the pressure in the Department, other than saying that the chairman of a nationalised industry will be removed—thank heavens he has a contract—to force the chairman to do something against his better judgment?

Mr. Buchanan-Smith: I do not know whether he will do that.

Mr. Dalyell: Nor do I. I cannot speak for Sir Denis Rooke. However, having gone through many hours upstairs, some of us have something of a history in this matter. There are deep questions here about the power of the chairman of a nationalised industry. I see that a note is coming from the Government's advisers.

Mr. Buchanan-Smith: It is about the time that I was going home.

Mr. Dalyell: It is not about the time to go home but about the substance of the issue. If the Minister wishes, I shall give way. Of course, it might be one of those inconvenient notes. If it is not, he should let us into the secret.

Mr. David Winnick: Read it out.

Mr. John Home Robertson: I think that we should be told.

Mr. Dalyell: We are getting nearer the heart of the matter. Coming down to these jocularities from a sedentary position affects the fortune of the House. Ministers normally get away with a great deal. They have half-hour Adjournment debates in which an hon. Member speaks for 15 minutes and the Minister replies for 15 minutes and that is the end of the matter. As ill luck would have it, from the Department of Energy's point of view, it has worked out that we have probed a little deeper. As we probe, however, we turn over stones from under which merge all these creepy-crawly difficulties. The first is that the Government are not at all certain by what right they can tell Sir Denis Rooke to do things in his industry that are against his better judgment. In that case, they had better bring the instructions, as they are entitled to do under recognisd parliamentary procedures, to the Floor of the House. On round one, it is full points to the Opposition.
I wish to ask the Secretary of State whether it is his policy to ensure that nationalised industries for which he is responsible are to be privatised at full economic value—or whether he wishes any other criteria to be adopted—and if he will make a statement. I have read that question out as there is some difficulty with the Table Office in putting it down as I wish. It raises the criteria to


be adopted in the assessment of economic value. I think that my hon. Friend the Member for Pontefract and Castleford will agree that the Minister was somewhat vague about the methods of evaluation.
Is it sufficient to rely on the estimates by Wood Mackenzie? It is part of the myth of this place for those who are interested in the oil industry that Wood Mackenzie valuations have some mystical authority. The Government ought to have some different assessment, because Wood Mackenzie might not be wholly disinterested. I choose my words carefully because I do not like saying things in the House that I do not say outside. Wood Mackenzie is a commercial operation and I am not sure that a private firm in its position should be the sole arbiter of the value of publicly owned assets. What are the other criteria of valuation?
Are the Government prepared to accept the British Gas Corporation's valuation of Wytch farm? That is a civilised and precise question. Would the Minister like to intervene? Here we go again—he does not reply. Great difficulties arise because those who say, "We shall take over a public asset at a notional value", should be clear about the notional value on which the assets are assessed. Throughout many hours in Committee, it was not clear from the former Secretary of State for Energy, the present Chancellor of the Exchequer, whether he had a clear idea as to how these valuations were to be made.
Is there to be another Amersham International? Is that to be what happens? If there is a sell-off, and we are talking about criteria, to whom are the assets going to be offered? Is there to be any special offer for people employed by the BGC or the oil industry? Is there to be an effort to sell off shares to small shareholders as the Government thought proper when they sold Amersham International? I remember what happened in that case—shares went to big investors.
Therefore, I repeat the question: what are the criteria to be adopted? Could we have some statement on this issue?
There is a difficulty because the Minister has fairly recently come to the Department; in a sense, I am an old sweat, and old sweats have been through the mill upstairs and have had to listen, hour after hour, to the present Chancellor of the Exchequer, the present Economic Secretary to the Treasury and the present Minister of State, Home Office and know rather more about these matters than this Minister. I am not criticising him, because if one comes from the Ministry of Agriculture, Fisheries and Food and is thrown into this problem one may not know much about it. The Minister should send a dispatch rider to find out from those who do know about the criteria. It is no good the Minister sitting there like a Buddha smiling away.

Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. The hon. Gentleman must make his own speech. The Minister has already made a 32-minute speech, and we cannot have a cross-examination, although the hon. Gentleman is entitled to make his own speech.

Mr. Dalyell: I am not pretending to make a speech, Mr. Deputy Speaker. I am trying to conduct a serious interrogation, for which for once we have been given the opportunity on the Floor of the House, about what the

Minister has said. One of the difficulties of the House is that far too seldom do we get the opportunity to probe in some detail to what Ministers have been saying.

Mr. Deputy Speaker: Order. The hon. Gentleman has every right to probe, but this is a debate, and he must make his own speech and not expect a dialogue or cross-examination.

Mr. Dalyell: I may have every right to make my own speech, but I am not having much success where it matters—in the outside world. It has become clear that, beyond his brief, the Minister does not know much about this subject. It is outrageous that Governments presume to tell the great industries how to go about their businesses when the Ministers who give these directives know so pitifully little about the subject. We are disrupting an industry that on the Government's criteria is working. Nobody says that the BGC is conducting its business badly. However, when one asks questions, Ministers become more and more vacant.

Mr. Lofthouse: Does my hon. Friend agree that the crucial thing is that the Government give instructions when they have no statutory powers to do so, and that that has been conceded by the Minister? Is he aware of the conclusions of the Select Committee on Energy on this in February 1982? It said:
It is clear from the evidence submitted to us that the Wytch Farm field is significant both in terms of the Corporation's activities and its contribution to United Kingdom oil reserves … In the context of our duty to scrutinise expenditure we think it right to stress the need to ensure the sale produces the maximum return for the nation. It is the responsibility of both the Corporation and the Department of Energy to ensure that this happens.
By no stretch of any imagination can the terms under negotiation meet the above statement. If the corporation is taking instructions from the Government, who have no statutory powers to issue them, it is selling off the field outside its commercial judgment.

Mr. Dalyell: That is a correct assessment of the situation.
My interest in this matter is not recent; it goes back a long way, to the time when there were six pits in my constituency, where there is only one now. I had much to do with the then chairman of the coal board, Alf Robens, who was a friend of mine. He may have had faults, but he was a remarkable nationalised industry chairman. He expressed his contempt, as a former politician, for the constant changing of Ministers at important technical Ministries.
I am not blaming the Minister personally, but this is part of the trouble. This merry-go-round of Ministers that is part of the British system means that they come new to a Ministry, possibly knowing very little, despite all their responsibilities, about particular industries. It then becomes clear, when they are pressed, that they cannot defend these policies. That is forgiveable if the policy is the result of advice from the technical advisers, but when it is the result of dogma and not of technical necessity it is much less forgiveable.
What estimate has the Secretary of State for Energy made of the assets of Wytch farm, and what estimate has been made by the BGC? This is a simple question. Does he know the answer? That is the difficulty. The Minister comes to the Dispatch Box to make speeches that profoundly affect an industry's future and is asked simple


questions about whether he knows the estimate, but he remains dumb. That is either because the Minister is fed up—he has known me for 20 years and knows that it is easier to shut me up by giving answers—or because he does not know the answer. I am not sure whether the Minister will get much advice from the Scottish Whip but if the Minister sent his Parliamentary Private Secretary to the Box he might get some answers.

Mr. Lofthouse: Perhaps I can help my hon. Friend the Member for Linlithgow (Mr. Dalyell), the Minister and House by saying that the British Gas Corporation's valuation is £450 million. The bid by the Dorset group is £160 million, £80 million of which is dependent on the Dorset group reaching a favourable profit figure.

Mr. Dalyell: It is a highly relevant question, which must be put in writing by the British Gas Corporation when its officials read this debate in the Official Report. It might seem as if we are all talking to ourselves but the Press Gallery is, rightly, rather more full than I have ever seen it at this time on Budget day. It is fuller because the press judges that there is considerable interest in the issue. It is important for its own sake. If we were discussing the Budget, and Back Benchers were making Budget speeches there would be no one in the Press Gallery.
Very important issues are at stake. By not answering the questions, the Minister has got into a position where I am much less friendly towards him than I was at the beginning of my speech. The Minister is debasing Parliament.
Ministers are there to answer questions and I can only assume, to make it crystal clear, that they have no estimate of the assets of Wytch farm and do not know what estimate has been made by the British Gas Corporation. Thus ignorance is piled upon ignorance.
I want to ask the Secretary of State only whether he has requested the British Gas Corporation to inform the Department of its estimates of the value of the corporation's assets at Wytch farm, and, if not, why not? Now the Minister is sulking, so I shall repeat the question, which is whether the Secretary of State has requested the British Gas Corporation to inform his Department of its estimates of the value of the corporation's assets at Wytch farm and, if not, why not? The question is clear enough. The fact that there is no answer speaks volumes.
I see that my hon. Friend the Member for Walsall, North (Mr. Winnick) is attending the debate. Ever since he has represented his south London constituency, he has been seriously interested in the interrogation and scrutiny of the House of Commons. He is also a fair-minded man and I shall give way if he wishes to interrupt me. When Ministers are struck dumb it usually means that they are uncomfortable about their policies.

Mr. Buchanan-Smith: indicated dissent.

Mr. Dalyell: The Minister shakes his head. I have asked him twice in a civil and agreeable way to answer my question. No answer is forthcoming. I can only assume that, once again, as happens with Governments, controversial policies are being put forward based on pretty empty knowledge, which brings the whole system into disrepute. That has happened before in the House. Some hon. Members have referred endlessly during debates to the constitutional measures in relation to Scotland and Wales. This very Minister was all in favour

of it to start with, until he discovered all the difficulties involved. Just as when he went blandly ahead in the 1970s and made many statements in Edinburgh and elsewhere on the subject of the constitutional arrangements of the United Kingdom, so he comes to the House to make a statement on a matter that he does not know very much about and expects us to ask questions, but resents us when we try to interrogate him. He had better get back to Ag and Fish, which he knows a lot about.

Mr. David Winnick: I am grateful to my hon. Friend for giving way. Does he agree that what probably happened was that the Minister expected that he would have to reply to an effective speech—it obviously was—by my hon. Friend the Member for Pontefract and Castleford (Mr. Lofthouse), who initiated the Adjournment debate, and that that would be the end of it? The Minister has discovered, first, that there is another speaker and, secondly, that my hon. Friend is pressing him with questions to which he did not expect to have to reply. The basis of his thinking beforehand was clearly that this would be an ordinary Adjournment debate. Now it has not turned out quite in that way, because the previous business has been completed. Having been pressed time and again in the past half-hour by my hon. Friend to answer those questions, the Minister cannot do so. Surely that shows the weakness of the policy and, I am sure my hon. Friend will agree, the need for much more detailed parliamentary scrutiny of this important issue.

Mr. Dalyell: This is disreputable behaviour by the Government Front Bench, but it is a tactic that we know so well. As soon as my hon. Friend the Member for Pontefract and Castleford had made his careful and proper speech, what happened? Along came the Government Whip, in his most charming way—it was the the hon. Member for Calder Valley (Mr. Thompson)—and asked me whether I would speak then. I said, "I have no interest in speaking now." I said, "Look" Donald, I do not speak until I have heard what is said. Perhaps the Minister will satisfy me with his answer. There might be no need for me to make a speech." I have never made a speech without a purpose. There is no point in speaking just for the sake of speaking.
I am concerned about what might happen to one of our great industries. In the past hour, the Minister has been found out. I see that the hon. Member for Aberdeen, South (Mr. Malone) is looking resentful. He hopes to catch your eye, Mr. Deputy Speaker, on a second Adjournment debate. I shall tell him how he can facilitate the second Adjournment debate—by interrupting his right hon. Friend the Minister, who is his parliamentary neighbour, and saying, "Look, mate, you had better answer some of these questions."

Mr. Deputy Speaker: Order. This Adjournment debate is very wide, but we should discuss the subject rather than the procedures of the House.

Mr. Dalyell: I can see that you are becoming slightly irritated, Mr. Deputy Speaker.

Mr. Deputy Speaker: I am not.

Mr. Dalyell: I ask for your patience, Sir. This is precisely the trouble. According to "Erskine May", Adjournment debates are based on scrutiny and interrogation of Ministers. If the hon. Member raising the subject has 15 minutes and the Minister has 15 minutes to


speak, one does not get far, but if, by parliamentary accident, the debate lasts a little longer, the inadequacies are revealed. What is now revealed is the fact that the Minister knows very little about the issues at stake.

Mr. Deputy Speaker: Order. I am anxious only to help the House and to protect the procedures. That is all. The hon. Gentleman is getting dangerously near to tedious repetition, because he keeps saying that the Minister does not know his subject. All I am anxious to do is to help the House and the hon. Gentleman.

Mr. Dalyell: Now we have it from the Chair that the Minister does not know his subject.

Mr. Deputy Speaker: Order. That is very unfair. The hon. Gentleman knows that I did not say that. He should withdraw his comment.

Mr. Dalyell: If I have misinterpreted the thought in your mind, Mr. Deputy Speaker, I apologise.

Mr. Buchanan-Smith: The hon. Gentleman had better apologise to me as well.

Mr. Dalyell: The Minister is now becoming irritated, saying that I had better apologise to him. In that case, he should answer the questions that I have asked him. It is no good becoming irritated and not answering the questions.
I want to ask the Secretary of State what he believes to be the statutory duty that the British Gas Corporation must fulfil in disposing of its assets at Wytch farm.

Mr. Winnick: That is an important question.

Mr. Dalyell: It is a very important question. The Minister did not answer the question about statutory duty. Therefore, I repeat my question. I ask the Secretary of State for Energy what he believes to be the statutory duty that the British Gas Corporation must fulfil in disposing of the assets that it has at Wytch farm. What is the Government's concept of the statutory duty? The record will again be blank because there is no answer.
The Minister is getting irritated, but so am I, because a number of my colleagues, among them my hon. Friend the Member for Merthyr Tydfil and Rhymney, my right hon Friend the Member for Morley and Leeds, South and my hon. Friend the Member for Wentworth (Mr. Hardy) and I spent many hours sweating our guts out on behalf of the House in Committee to settle these matters. Not all the discussions took place on a party basis, because we took our jobs seriously. I take the matter seriously, but I do not think that the Minister does.

Mr. Robert C. Brown: Perhaps my hon. Friend would care to ask the Minister what valid reason, other than doctrinaire politics, the Government have to demand that the British Gas Corporation should sell off the only onshore oilfield in Britain which is making a profit for British taxpayers.

Mr. Dalyell: I hope that my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Brown) will catch your eye, Mr. Deputy Speaker, to develop that point, because that is precisely what it comes down to. There is one reason and one reason only for following this course. That is sheer, uninformed, ill-conceived, badly-thoughtout, political dogma. That is what it is all about. There has

been no technical consideration whatsoever in this matter, and had there been a respectable technical case the matter would never have been put forward in this way.
My only outside job has been as a weekly columnist of New Scientist for 16 years. In that connection I talked to many people; not all were Labour, SDP or Liberal voters but some were Conservative voters. It is clear that those who know about the industry see no earthly reason for doing this. The Minister misled the House when he said that the matter was about the injection of private capital. What private capital is needed to do anything about Wytch farm? It is not necessary. That was a red herring, and people who bring in red herrings often do so because they have no better argument. Political dogma is causing the trouble. The matter is not about the gas industry but about getting assets in the short term for the Chancellor of the Exchequer—Ah! Someone from the Opposition Front Bench has just arrived. That is excellent. It is about time that other hon. Members joined the debate, although I do not blame hon. Members for being absent because the debate came at an unexpected time.
I shall tell my hon. Friend the Member for Motherwell, South (Dr. Bray) what is happening. We have been here for almost an hour. The Minister has no technical reason for bringing about the privatisation of Wytch farm and he cannot answer the simplest careful questions that I have put to him about the gas corporation. Some hon. Members spent many hours in Committee going over the matter, yet Ministers at the Department of Energy are acting in bad faith.
I am not getting angry to put it on, but because I am genuinely angry. Some hon. Members want to do their best for the country but find that there is a frivolity about the answers, or the lack of them.

Mr. Home Robertson: Dumb insolence.

Mr. Dalyell: My hon. Friend the Member for East Lothian (Mr. Home Robertson) says, "Dumb insolence." It is dumb resentment. I know that the Minister is getting angry, but that is not good enough. It is all very well for him to get annoyed, but Ministers are present to answer questions. These are precise questions that were not answered in his speech. My anger is not faked but genuine.
The Minister said that the British Gas Corporation decided to act on instructions. That is a very egregious way of putting it, because members of the Select Committee and people who read the newspapers know that the corporation, left to its judgment, would not have acted on any such instructions. The corporation made it clear, did it not, from the beginning that it did not want to do this? My hon. Friend the Member for Newcastle upon Tyne, North knows a great deal about the gas industry, and I am glad that he will take part in the debate, because he has often spoken about the industry. The fact is that the technical judgment of the corporation was totally different from what the Government now want it to do.
It is no good having a great session of trying to browbeat Sir Denis Rooke. He is a considerable figure and a formidable leader of a nationalised industry. Those of us who, in our parliamentary capacity, have met Sir Denis Rooke on several occasions know that he has the gas industry at heart. What do the Government mean when they say that the corporation decided to act on instructions?

Mr. Winnick: I do not wish to seem to be defending a Conservative Minister—that would be most unfortunate, and indeed unusual—but does not my hon. Friend agree that this stupid policy of privatisation and the whittling away of assets that belong to the community as a whole stems directly from the blindness and the dogma of the Prime Minister and the Chancellor of the Exchequer? My hon. Friend's fire should be directed at them. Would it not be appropriate for the Prime Minister, the Chancellor and the Secretary of State for Energy to be present to defend what my hon. Friend rightly described as an indefensible policy?
As I said earlier, I have no desire to defend the Minister, but he clearly lacks a detailed knowledge of such affairs. That is not in dispute. The real culprits are the Prime Minister and the Chancellor of the Exchequer, who have abandoned the national interest in pursuit of this senseless policy of privatising every vital asset that belongs to the community.

Mr. Dalyell: I must tell my hon. Friend in all seriousness that the Chancellor of the Exchequer is unlike any previous Chancellor whom I have known. He is light years away politically from Selwyn Lloyd or Reggie Maudling, and I simply do not know what the shade of Ian Macleod would think about some of the actions of the Government.
When he was in Committee Room 11, the Chancellor of the Exchequer was a political thug. I do not like political thugs, because they often bully Back-Bench Members. When pressed, the Chancellor is often wrong. He is not all that well briefed, and I do not think he is very clever either, but that is by the by.[Interruption.] I see some Conservative Members smiling with approval. They know exactly what I am getting at. I am not making too much of a political point here, because if the Conservative Chancellor of the Exchequer were the right hon. Member for Worthing (Mr. Higgins), as he should be, that would be a different matter.
I came to this House at a time when a civilised man was the Chancellor of the Exchequer, and he was concerned about the national interest. I refer to Reggie Maudling. He would have made absolutely sure that his junior Ministers answered debates and took part in arguments. The characteristic of this Government—it comes from the top—is that, when Ministers are pressed, they do not answer. I do not want to be led astray into making known my opinion of the present Prime Minister, but it was she who ordered the sinking of that ship, Belgrano.

Mr. Deputy Speaker: Order. We are discussing oil. The hon. Gentleman must not stray too far.

Mr. Dalyell: Before my hon. Friend the Member for Newcastle upon Tyne, North speaks, I would point out that the Minister said that the British Gas Corporation would find it not unattractive to proceed with. I do not know where he got that from, but I think that those were the words used. Ministers should be careful before they start putting words into the mouths of the British Gas Corporation. Will the Minister interrupt me and say that the corporation actually approves of what his Government are doing? Has he the face to say that? The fact is, as we all know perfectly well, and as those who have experience of the gas industry know perfectly well, that it does not in any way approve of what is happening.
The Chancellor of the Exchequer claims, in the words of the Minister, that the sale would be "commercially justifiable". I do not believe for one moment that the British Gas Corporation agrees that it is commercially justifiable. We would like to see the Government's evidence for suggesting that it is commercially justifiable. On what basis is it commercially justifiable? It is not commercially justifiable from the point of view of the United Kingdom Treasury, but commercially justifiable from the point of view of political dogma. That is what it is all about.
May I say, in conclusion, before my hon. Friend the Member for Newcastle upon Tyne, North and others speak, that the instructions are not given legally. They are not legally binding. I hope that, when senior officials of the gas corporation read this in the morning, they will feel it incumbent upon them to show this debate to their lawyers, to get a legal opinion, possibly counsel's opinion, and then to do their duty. If they do their duty, it will mean that Sir Denis Rooke and his colleagues will act in what they think is the commercial interests of the great industry that they represent.
The Minister talks about an auction process. Are we to have an auction like Amersham? Is that to be the basis—something of a rip-off? I do not normally indulge in the language of my hon. Friend the Member for Fife, Central (Mr. Hamilton), but we must be very clear about who will benefit from this sell-off. I suspect that it will not be the constituents of my hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman). I do not think that many of those who get compensation from the events at Scott Lithgow will be able to invest in Wytch farm. We know that it will go to those in our society who are among the best off. Indeed, the tenor of the Budget was that we have gone back on unearned income to pre-Lloyd George. Those who depend on unearned income will benefit from this, not those who need it most.
It is all very well to say that oil and gas do not go together, and that somehow the British Gas Corporation is not the appropriate organisation to deal with oil, but that is technical rubbish. Oil and gas are found together, and it is spurious, technical balderdash and gobbledegook to say otherwise. We are in the infants class, that is the truth of the matter.
I must say to the Minister, therefore, that I am genuinely angry. My anger is not feigned. I think that the Minister's performance was disgraceful. I think that the policy is ill-conceived and, indeed, malicious and that it ought to be thoroughly examined by the Select Committee and by the senior officials of the BGC to whom I shall send the Hansard report of this debate, with a comment about the Minister's shame in not answering these questions.

Mr. Robert C. Brown: First, I congratulate my hon. Friend the Member for Pontefract and Castleford (Mr. Lofthouse) on raising this debate at such an opportune time. I apologise that, due to other engagements, I was unable to be present to hear what was undoubtedly a learned and enlightening speech. I offer him my profound apologies. I apologise to the Minister for not having been present to hear what I understand was a disgraceful reply to my hon. Friend's superb speech.
I speak with a background of 30 years' experience in the gas industry, first in private hands, and subsequently in public ownership. I entered the gas industry in 1937 as


an apprentice. I spent just short of 30 years in it before I entered the House. I finished my period of service in middle management. I am immodest enough to say that, had it not been for the intervention of politics which brought me to this place, at this point in my life I would probably have been in a senior management position, so the gain of the House was clearly the loss of the British gas industry. Normally I am a modest man, as my hon. Friend the Member for Linlithgow (Mr. Dalyell) knows.
Very early in my life in the gas industry, I learnt that senior management in the industry was comprised of people who were far from politically motivated. On the contrary, if anything, they were a-political. They were certainly not Labour-oriented people in the old days of the Newcastle and Gateshead gas company, which I remember with affection, although the industry was then in private hands. I make no secret of the fact that I looked forward to the day when the people of this country would own one of its major industries. In 1949, of course, that happened. I was more than delighted, as a Member of Parliament, when the British gas industry exploited onshore oil in this country for the first time. No doubt all hon. Members are aware that the gas industry has done well by the development of the exploitation of the North sea oilfields surrounding our shores.
However, we must ask why the private oil industry did not exploit the onshore resources, which would have been a much cheaper buy than the under-sea resources now being exploited in the North sea. It was left to the British Gas Corporation to lead the way in onshore oil development. I share the anger of my hon. Friend the Member for Linlithgow (Mr. Dalyell) at the way in which doctrinaire politics and sheer dogma are forcing a highly efficient, publicly owned industry to sell a great asset—Wytch farm oilfield.
I shall repeat a question that I asked earlier. What reason could there be for demanding that British Gas should sell that worthwhile and profitable enterprise in Dorset? The answer is that there is no reason. I do not apologise for repeating my remarks, because there is no reason—apart from political dogma—why this Tory Government should demand that a publicly owned industry should sell a very profitable enterprise. If the Minister has the brass neck to suggest that there is any reason other than dogma he will be laughed out of court, as he well knows.
Reference has been made to Sir Denis Rooke. In the past 30 or 40 years, management in the gas industry has not changed much, and Sir Denis Rooke is a typical senior manager. He has one interest, and that is the gas industry.

But the interests of the British gas industry can only be those of Great Britain limited. We should all want to share that interest. However, it is clear that Conservative Members do not share it, because for the doctrinaire reasons of private profit the Wytch farm field represents for them a very lucrative proposition. They think that it should be not in public but in private hands. That is what this debate is all about.
I could debate the issue at length, as we did in Committee Room No. 11, but I shall not do so tonight. It is all on the record. The powerful case that we then made in that Committee has been echoed by my hon. Friends in the Committee on the Rates Bill and in other Committees. They are winning all the arguments, because the Government have no arguments left other than those of political dogma. The demands of this Government on Wytch farm bode very ill for the people of Great Britain. I spent 30 years in a gas industry that was privately and then publicly owned, and I know how I used to bristle when people suggested that we were a bunch of lazy layabouts working for a no-good industry. I started work there when I was 16, and developed a great pride in the industry.
That indeed is the attitude of the people who developed the industry and developed Wytch Farm oilfield. How do they feel about a Government which for no other reason than bitchiness, because it is a public enterprise making a profit, cannot bear to see it continue? The same can be said across the whole spectrum of public ownership.
I do not accept the concept which has been fostered by this Government that there is nothing good about public enterprise. I am not one of those people who think that the profit motive is evil. I do not think that at all. If industries such as gas and electricity, and if British Airways and Cable and Wireless, can make a profit for the people of Great Britain, that is a laudable thing. I see no evil in the profit motive.
If there has got to be monopoly, I do not see anything evil in monopoly in itself. The evil is when monopoly is in private hands, as we shall see after the passing of the Telecommunications Bill, when the monopoly at present in the hands of the state becomes a private monopoly. That is when it becomes evil. I see nothing wrong in a public monopoly like the British gas industry serving the British people faithfully. But it is being forced into a corner by this reactionary Tory Government as they sell off the assets of the British people.
That is exactly what Wytch farm oilfield is, and I share the anger of all my hon. Friends that the Government should be taking this type of action. They should hang their heads in shame and the British people should give them their reward at the ballot box next time.

North Sea Oil

Mr. Gerald Malone: It is a great privilege to be able to—

Mr. Tam Dalyell: On a point of order, Mr. Deputy Speaker. Could it go on the record that the Minister did not reply to our points on the last debate?

Mr. Deputy Speaker (Mr. Paul Dean): That is not a point of order. It is on the record, presumably.

Mr. Malone: I thought it was about to be a great privilege to introduce this Adjournment debate on the question of the development of North sea oil, but I am at a loss to know how to proceed. I had always understood that debate in the House did not proceed by way of interrogation. I am at a loss because I usually take an example from the hon. Member for Linlithgow (Mr. Dalyell), who is, of course, a much more experienced Member than I. But if there has been any disgrace in the House in the course of the last few moments it has been quite simply in his performance. The House is not a barrack room in which cross-examination is indulged in other than at Question Time. If the hon. Member for Linlithgow had cared to pose his questions in a speech, I am certain that they would have been answered by my right hon. Friend. Indeed, if my right hon. Friend made any mistake, it was to indulge at the beginning of his speech the hon. Member for Linlithgow's eccentricity. This is the first occasion on which his eccentricity has been exceeded by his lack of courtesy. I hope that it will be the last that I shall see in the House.
The question of North sea oil is vital not only for the country but, in particular, for my constituency. That is why I am delighted—

Mr. Robert C. Brown: I am sure that on reflection the hon. Gentleman will agree with me that when he talks about my hon. Friend the Member for Linlithgow (Mr. Dalyell) and refers to eccentricity and lack of courtesy he is making a grave error. Eccentricity I think my hon. Friend would accept, but lack of courtesy is a charge that could never be sustained against him.

Mr. Malone: I might well be prepared to accept that if the hon. Gentleman had listened to the speech of the hon. Member for Linlithgow, but he did not, and I am afraid that in those circumstances I am not prepared to withdraw my comments.
North sea oil is vital not only for Britain but for my constituency. It is worthwhile recollecting at the outset of the debate how important it is. Britain's North sea oil industry now employs directly about 100,000 people. It earns enormous revenues for the Treasury and it has transformed the United Kingdom's economy.

Mr. Geoffrey Lofthouse: On a point of order, Mr. Deputy Speaker. Have we now left the debate on the Wytch farm oilfield?

Mr. Deputy Speaker (Mr. Ernest Armstrong): Yes. We are now on the second Adjournment debate.

Mr. Malone: Not only has it transformed the United Kingdom's economy but it has transformed the north-east of Scotland. It has crossed the boundaries of technology which had been set by the oil exploration industry in the

past and it has resulted in the commissioning of ever more advanced platforms from the United Kingdom. It has given the United Kingdom's industry an opportunity that would otherwise have been absent.
It is worthwhile having a look at the stage at which we have arrived. Up to now, some £30 billion has been invested in the North sea. One third of the proven resources have been exhausted and a difficult future lies ahead. Two thirds of the oil remains to be exploited and one of the difficulties is that the new fields that remain are more marginal than those that were first discovered and the risks are higher—not only the physical and technological risks but also the financial risks that have to be taken by the enterprises that go into the North sea to exploit its resources.
One question that is bound to be asked by any company deciding whether to invest in new fields in the North sea or whether to invest further in fields that are already being exploited is whether further capital expenditure is worth it. There have been times when that might not have seemed to be the case. As more marginal fields have been brought into play, so the returns have been lower. Fields have needed much more capital-intensive investment to exploit them satisfactorily and there have been many doubts, in particular among the major oil companies, as to whether reinvestment, particularly in fields where enhanced productivity is required, would take place at all
Enhanced productivity is important because at least half of the investment in the North sea that will take place over the course of the next few years will be in existing fields where there is an attempt to pull out more oil and companies will be deciding whether to invest in enhanced recovery methods, whether to invest in further drilling programmes from platforms already in place, and whether to develop many small deposits of oil that surround those platforms with some of the more technologically advanced sub-sea well head systems that are currently being developed in Britain and elsewhere.
Stakes are high. When we talk about new fields that are to be developed in the North sea and additional investment in existing fields, we are talking about a figure between £50 billion and £60 billion. It is an enormous investment and it is about twice what has already been invested in the North sea. The House should bear in mind that in the past investment in the North sea has always exceeded expectations, as have the results of that investment. More fields have been discovered and more oil has been brought on stream.
A critical issue in the North sea today which faces not only the Government but British industry is the export of the technology that will be used in the North sea over the next few years. There could well be as much benefit from investment in that type of technology and its export as there ever will be from investment in the North sea itself. Vast offshore oilfields remain in the world to be exploited. There are offshore fields in Canada, Australia, and India, as my right hon. Friend the Minister knows only too well having recently returned from there. Indeed, it is estimated that the majority of the future oil supplies to be found in the world will be offshore and the North sea has provided the test bed for the technology that will enable all that oil to be exploited.
The Government, in two successive Budgets, have raised the curtain on what will now be the second act of the North sea story. Prior to last year's Budget, there was a lack of coherence in the tax structure affecting the North


sea and the way in which taxation was collected from oil and gas supplies. It is worth bearing in mind that until last year the average percentage of take from any North sea development was more than 90 per cent.
Many Governments have approached the taxation of the North sea asset on the basis of "Let us see how it goes". Taxes were not introduced on a basis that would encourage a depletion policy; they were not introduced on a basis that oil companies would be encouraged to invest in the future. They were introduced on a willy-nilly basis, one following the other—for example, advance petroleum revenue tax was brought in to meet a certain position as it arose.
To some extent, that is not surprising. When initial investment in the North sea took place, the companies making the investment estimated that they would get a return of about $7 per barrel on the oil extracted. The difference between what they realised and their calculations at the point of decision was enormous. The oil upon which they based their decision to invest capital when they thought it would return $7 a barrel is now fetching about $29.
Perhaps during the first phase of North sea development it was natural that Governments approached the question of revenue raising with something less than a wholly coherent policy. The ground was moving far too quickly beneath them. But the rate of return from the North sea has now changed. I do not think that there will be a return to the days when a barrel of oil will produce anything like the $7 on which previous investment was based. The rate of return will be squeezed, profit margins will be squeezed, and it will be the Government's duty to ensure that the tax regime is such as to encourage continued investment.
The Government's response to that new position has been most encouraging. Last year's Budget included the proposals for the Petroleum Royalties (Relief) Bill, now incorporated in legislation. That has resulted in a vast increase in exploration in the North sea. It is worth making the point that there had been a static period for about two years as oil companies wondered whether they would invest in future. The Government showed their good intentions and introduced that important legislation. I suggest that the current exploration, with the possibility of 19 or 20 new fields coming on stream in the not-too-distant future, is a direct result of that legislation.
In addition, the good news of several taxation changes was announced in today's Budget. I especially welcome the Chancellor's statement that he will consider taxation changes in respect of the incremental oilfields. That is something for which the oil companies have been looking. My right hon. Friend has pledged to discuss the matter with them and to bring forward legislation, perhaps next year. The oil companies will welcome that.
Similarly, capital allowances can now benefit small companies as they can be set against assets when the capital is invested and not when the asset is brought into use. That is especially important in respect of the North sea. It takes a long time to develop an important asset and deploy it in the North sea. The change will make a great difference to small companies which are under-capitalised and which need to get their cash flow right. Both those announcements will be of great benefit to the future of investment in that area.
There have been some disappointments in the past with the performance of British companies and the way in

which they have participated in some areas of North sea development. I know that my right hon. Friend the Minister is only too well aware of my slight scepticism of the figures issued by the Offshore Supplies Office about the participation of British industry.
When expressing scepticism about the involvement of British companies in the North sea, I do not seek to set up a protectionist barrier. Protectionism would be fatal for a country which intends to use its industry to exploit the North sea resource and overseas resources. I ask my right hon. Friend to confirm that, no matter how bad the state of British participation in the North sea might be, the Offshore Supplies Office will not try to disguise the true position. It is only by there being no protectionism within Britain and no concealment of poor performance, wherever it may be, that we shall get an industry that will be able genuinely to compete abroad.
Industry was uncertain at the beginning of the North sea story but it is not so uncertain now. British firms are winning many orders and it is reassuring that they are winning them in high technology sectors. It is difficult to select only one or two firms in the Aberdeen area which have been successful because so many of them have enjoyed success, but there are two particular firms which have been successful in the high technology area. One of them is the Wood Group, which will go on to become an important international competitor in that market. An interesting entry into high technology development in the North sea is the partnership between Weir Pumps of Glasgow and an American partner. These two undertakings have developed an example of down-hole technology which they are marketing under licence. It is sweeping the field and taking an ever increasing share of what is a difficult market. They are manufacturing all the items that go into this technology from British products. It is an entirely British product that is going down hole.

Mr. John Maxton: There is a strike at Weir Pumps.

Mr. Malone: I am sorry to hear that there is a strike, but that does not seem to be holding the firm back in its endeavours to get into North sea developments. I cite the firm as a clear example of the way in which British technology should go.
I ask my right hon. Friend to ensure that the next stage of development sees something further coming from the Offshore Supplies Office. It is important that the highest standards of design and quality should be encouraged in British industry when it is participating in the oil industry in the North sea and abroad. It is a demanding industry worldwide and one in which we shall succeed only if the highest standards are achieved.
We are at the crossroads in North sea oil development. We are probably about to make the largest single investment in any industry that has ever been made by the United Kingdom. It is a success story that we shall win in the second act rather than in the first. At the end of the day British industry will rise to the challenge and we shall have prosperity from North sea developments that will continue long after North sea oil has gone. I believe that the industry will continue to be an export leader in the United Kingdom.

Dr. Norman A. Godman: It is of some interest to me to take up the


remarks of the hon. Member for Aberdeen, South (Mr. Malone). He represents an area which I know well, for I challenged his predecessor in the contest for the seat during the 1979 general election. I think that I helped his predecessor to leave the consituency. It is now represented by a man who is very well known in Aberdeen for his dead parrot.
The hon. Member for Aberdeen, South talked about the export of technology, and the Minister knows of my deep concern about export orders in the offshore construction industry. The hon. Gentleman discussed the export of offshore technology from Britain to Canada, Australia and India. and I should like to see that development take place. I believe that British and, particularly, Scottish industrial organisations have much to offer developing offshore industries in other countries.
I am deeply disturbed by recent developments in the industry. One example is the placing of the Sun Oil order with the Gotaverken-Arendal Company of Sweden. This is a matter of regret. We certainly have the capability in Scotland to build the structures that are the subject of the order. Scott Lithgow certainly has the skills, enterprise and knowledge to build such a structure, and there are other organisations in Scotland that could build that rig. Is it riot possible that the placing of this order in Sweden will encourage a trend towards the placing of orders outwith the United Kingdom? That could happen despite the honourable efforts of the Minister to discourage such a development.
What is the value of the work that will come to Scotland from that order, in terms of work subcontracted to a Scottish yard, and will the Department of Energy be ignored in the future where such contracts are concerned? It is essential for the Scottish industry not just in the north of Scotland but on the lower Clyde that the orders should come to Scotland. We have the skills and the knowledge to produce semi-submersible vessels and structures, but now we hear that it is on the cards that the order for the British Petroleum single well oil production system may also be placed abroad despite the fact that both Cammell Laird and Harland and Wolff are keen to acquire the order. British Petroleum's Government-appointed directors—if not BP itself—have an important responsibility to ensure that the order is placed within the United Kingdom. If it is allied with the Sun Oil rig order, are we not beginning to talk about the export of orders rather than the export of technology? We might go in the opposite direction from that pointed out by the hon. Member for Aberdeen, South and talk of importing technology in this important field.
Mention has been made of the massive sums of money that are to be invested in offshore developments. Much of that money will go to the offshore construction industry. What is the Minister's view about the Sun Oil order going to Gotaverken-Arendal, and how will he react if the BP order is placed outwith the United Kingdom?
I should also like to know something about the Department of Energy's view of current developments at Scott Lithgow. To me privatisation is very much the second best alternative, but Trafalgar House and Howard Doris may come to the lower Clyde, and they have between them the capability and nous to build such structures. How does the Minister view developments at Scott Lithgow and elsewhere, in the light of the placing of the Sun Oil order abroad and the likelihood that the BP order will also be placed abroad?
I apologise for intervening in an Adjournment debate, but these issues are vital to my constituency. When the dust has settled around the current negotiations over the acquisition of Scott Lithgow, we want to see orders placed at that yard. We want to see the prospect of employing 4,000 people or more at Scott Lithgow rather than the figure of about 2,000 which has been bandied around by observers and journalists.

The Minister of State, Department of Energy (Mr. Alick Buchanan-Smith): I congratulate my hon. Friend the Member for Aberdeen, South (Mr. Malone) on taking the opportunity of a second Adjournment debate to raise a subject that is of considerable importance to his part of Scotland and the rest of the United Kingdom economy. I know that he represents—

It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Mather.]

Mr. Buchanan-Smith: My hon. Friend the Member for Aberdeen, South speaks with real authority as he represents some of the most vigorous firms and individuals that are exploiting the United Kingdom continental shelf to the advantage of the entire country. I congratulate him on advancing his case in such a forthright way. I share much interest in these matters as I also represent part of the city of Aberdeen and many of my constituents are also in the forefront of development.
I am delighted to see that the hon. Member for Oldham, Central and Royton (Mr. Lamond) is present. I am sure he agrees that other cities should follow the example of Aberdeen. I do not intend to reiterate what my hon. Friend the Member for Aberdeen, South said about the economic importance of the industry. We must remember that about 3,000 companies in the United Kingdom are now involved with North sea oil in some way. With regard to what the hon. Member for Linlithgow (Mr. Dalyell) said in the previous Adjournment debate, I should point out that I have considerable first-hand experience of the oil and gas industry. One does not have to be in a position of responsibility in Government to understand these matters. It has come home to me since taking over my job in the Department of Energy that many new and old companies in many parts of the United Kingdom have benefited tremendously from the industry.
Perhaps I shall be excused for mentioning a traditional company—British Ropes—that is to be found in the heartland of Britain that was in the forefront of our industrial revolution. The company was built up on our naval skills in an earlier age and has recently proved to be one of the finest examples of firms that export technology. It is successful against worldwide competition. It scored a world first in technology with the Exxon leader tower guiderope mooring system within 100 miles of New Orleans in the heartland of the American oil industry. It is a fine example of many enterprising companies that are to be found in the United Kingdom.
My hon. Friend was also right to point out that we are moving into a new phase of development that will require the development of more capital-intensive and difficult fields. I am grateful for his welcome of the budgetary changes.
The Chancellor said that he would consider the problem of incremental oilfields, which is vital to the subject.


Whatever the decision may be, whether it is a decision to make changes or new proposals, the fact that it will be back dated to today is further proof of the commitment by the Government to this new stage of development of our oil industry and the marginal fields. If we could get greater reserves through better methods of exploitation of reserves, that would enhance oil recovery, which would be to the benefit not only of the oil companies but of the United Kingdom as a whole and would improve the continuity of supplies from the continental shelf.

Mr. Maxton: What effect will there be from the changes in the capital allowances and the reduction in corporation tax? New industries trying to get in new investment need capital allowances, whereas the older companies with high profitability benefit from changes in the corporation tax. How will this benefit the industry?

Mr. Buchanan-Smith: What the Chancellor announced today about these changes will be of net benefit to the offshore oil industry, although the industry will make its own assessment. I have no doubt, from its response a year ago—to which the Chancellor referred in his speech—that it will realise that the British Government are firmly behind the continuing development of the North sea and other areas of our coast.
One thing that my hon. Friend the Member for Aberdeen, South did not mention was the current licensing round that I announced a few weeks ago, which takes us out into the marginal areas of deep water where new technology is required, in waters of depths up to 2,000 m. This demonstrates that we in the United Kingdom industry are at the forefront of the technology and underlines what my hon. Friend said. I hope that we shall make sure that we can export that technology and the hardware that goes with it where it may be appropriate. It is not just technology that we want to export overseas, but everything else that goes with it.
As my hon. Friend knows, my right hon. Friend the Secretary of State has taken initiatives in one of the newest areas, China, where our experiences could be particularly appropriate. A few weeks ago I visited India, another country that is successfully and efficiently developing. Its offshore reserves are important and when it moves into its deeper waters, as it will do, our technology may help. I found out how many people in that country look to the technology developed by British companies.
The significant thing—as in any country with a young industry such as ours was—was that we had to rely initially on the technology of others. We have now developed our own technology and have something to show the rest of the world. This is one reason why I strongly support the export policy and why the work of my Offshore Supplies Office will be directed in that way. It will give a continuity to the industry that will go beyond the exploration and development stage of our oil resources.
If we are to survive in the oil industry we have to be international, as the oil industry is international. We cannot try to develop our industry on a national basis because if we did so we should not be taking the full benefits that it offers us both now and for the future.
My hon. Friend rightly said that he hoped that we would continue our policy of making sure, through the Offshore Supplies Office, that we shall continue to have a good

share of the activity on the continental shelf. I give him that assurance. Equally, I accept that the purpose of the Offshore Supplies Office is to give British companies, and to ensure that operators give British companies, a full and fair opportunity to quote and participate in such development.
That is not being done in a protectionist sense, because we would lose the opportunity for our industries to become international and competitive. One of our successes, which I saw in India where British companies are operating, is that we have already demonstrated that we are competitive on the international scene. I gave a few moments ago a striking example of that success in the American offshore industry where we have proved ourselves to be competitive. I assure my hon. Friend that we shall do our best to support our industry so that it can be competitive and take advantage of those opportunities overseas.
My hon. Friend the Member for Aberdeen, South mentioned our assessment of the performance of British companies and questioned whether it was a real one. I believe that it is real because, given that we are dealing with an international industry and that we want British companies' to act internationally, the proper way to make an assessment of British participation in work on the continental shelf is by dealing not with brass-plate companies but with those that base their activities here, are manufacturing here and are creating British jobs. That is the basis of our assessment of the participation of British companies.
I share my hon. Friend's concern that overseas companies are most interested in our development of new technology, such as that carried out by the Wood Group and Weir Pumps, which I commend. the more that we can do to encourage the development of such new technology, the better. I hope that my hon. Friend will be encouraged by what was done in the eighth licensing round, when we required successful licensee companies to discuss with us the research, development and technology that they would use within the newly licensed areas. We have had very successful discussions with companies so far, and I intend that they will be a feature of the ninth licensing round. They will probably be further refined in the light of our experience in the eighth round.
The companies successful in obtaining licences to work on the United Kingdom's continental shelf will require the increasingly important new technology to work in frontier areas. It is important for new technology to be transferred to British companies, as we can ensure continuity only in that way.
I know the difficult time that the hon. Member for Greenock and Port Glasgow (Dr. Godman) and his constituents have had and of their considerable concern, anxiety and worry in recent months. I thank the hon. Member for the constructive part that he has played, which I would expect of him and any other hon. Member in making sure that the long-term interests—I stress that they are long-term—of his constituents are properly served. I am delighted that I and my Department have been involved in trying to find a solution to the great difficulties. I hope, for the sake of Greenock and Port Glasgow and the United Kingdom offshore industry as a whole, that we shall have the capability to build the semi-submersibles required in the next generation of development.
I would have been bitterly disappointed, and would have shared in the disappointment of the hon. Gentleman and his constituents, if we had not been able to preserve and continue the first-class facilities at Greenock and Port Glasgow. I refer to the physical facilities in terms of yard space as well as the capability in human terms, which is equally important. It would be a tragedy if the skills that have been built up over generations in our older shipbuilding industries were lost to the new generation of offshore industries, where our future must lie to an increasing extent.
Therefore, I commend and support the efforts of those such as Howard Doris and Trafalgar House, which have come together to try to find a solution. I only hope that over the next few days and weeks, in co-operation with everyone concerned, not only a satisfactory but a lasting solution will be found. That is in the interests not only of Greenock and Port Glasgow but of the industry as a whole. We need an effective construction and fabrication industry with a semi-submersible capability.
I am optimistic that a soundly based, effective and proper solution will be found. However, that will be only the start, and it will be difficult to reach that starting point. After we have got there, we must remain competitive. I make no apology for preaching this to the House. I think that it is accepted by everyone in the House that, if we are to be competitive, full and fair opportunity should be given. I shall do my damnedest to make sure that our firms and yards are given a full and fair opportunity. However, in being given that opportunity, it is up to the management and the work force to make sure that they take advantage of it by being competitive. This is a highly competitive world. If we are not competitive, we shall be looking only to a short-term and not to a long-term industry that has the export opportunities to which my hon. Friend the Member for Aberdeen, South and I have referred.
Prices are important in competition. That is where the dedication of the work force and the initiative and enterprise of the management have a crucial part to play. However, quality is also important. The industry requires an incredibly high standard of quality of workmanship. I hope that everyone will rise to that. We must also make sure that we can deliver on time—indeed, ahead of time. It is significant that the companies and yards that have been most successful are those that have the best records for delivery and quality.
Therefore, if we can put together a deal for Scott Lithgow, which I hope we can, that will be only the start. I hope that everyone will continue their endeavours in making a start on carrying through the operation to a successful conclusion. The Offshore Supplies Office and I will do everything possible to ensure that those people are given full and proper opportunity to compete. I say that as much in relation to the British Petroleum orders that will be eventually placed as in relation to others.
The hon. Member for Greenock and Port Glasgow referred specifically to Sun Oil and the development of the Balmoral field. I make no secret of the fact that last summer, when the development was coming forward, I welcomed it. It is a marginal field, and I have always appreciated that. However, it was going to use a different

technique—a floating production facility—for that field, which was another new development in the North sea. I am sad to have to report to the House—I say nothing that I have not already said to the company—that the performance of Sun Oil and its co-partners in the development has fallen far short of what I would expect from a major American oil company, according to experience in recent years. It falls far short of what I would expect of any company which, through the licence and development approvals that it has been given by Her Majesty's Government, has had the opportunity to operate on the United Kingdom continental shelf. I am sad to have to say that. Some hon. Members have expressed exactly that point of view to the company.
I make no secret of this fact. I have already had two meetings with the company and its partners. I expect to have a third meeting tomorrow. Before the meeting I hope that the company will decide what it will do. I say that not only because I am concerned about its performance—I have made my concern absolutely plain to the company and its partners—but because, although the company has given me an assurance that it will meet a United Kingdom content of over 70 per cent., which other operators in the North sea have met in recent years, I have serious doubts about its ability to perform to that standard. I say that with sadness rather than in anger. It has not given British yards a full and fair opportunity to tender for this work as we expected it would. If it gives the main contract for this work to an overseas yard, I shall have serious reservations about whether it will achieve what it has said to me it will achieve. It told me that it could achieve a United Kingdom content of more than 70 per cent. If it puts the order abroad I, my Department and the Offshore Supplies Office will monitor closely its performance while carrying out its development plans and building the structure during its assembly. Because of my doubts we shall have to monitor the position continually and carefully over the entire development period.
At the end of the day it is vital to me, my Department, the Government, the House and the nation, given our tremendous assets in our continental shelf and given that it is open to the Government through their licensing procedures and the procedures for approving development plans, that we have companies as licensees and approved as operators, that put forward development plans to us, in whose performance we have confidence and which we believe will perform correctly and in the best interests of the United Kingdom.
I have said to the company and its partners that, if the performance falls short of our expectations, I shall scrutinise carefully future attempts by those involved in such developments if they apply for approval, development or licences to explore the United Kingdom continental shelf. It is my duty to make sure that we have companies operating in whose performance we have confidence.
I thank my hon. Friend the Member for Aberdeen, South for initiating the debate and the hon. Member. for Greenock and Port Glasgow for his contribution. We are dealing with one of the most exciting areas of the British economy. My Department and I are committed to continuing development and confidence and to making


sure that we develop these resources in the best way possible to the best advantage of the nation, both within the United Kingdom and overseas. I assure the House that I am fully committed to that.

Question put and agreed to.

Adjourned accordingly at twenty-three minutes past Ten o'clock.